Any Tax Experts?

[Chief Rum]

I just got F'd hard on taxes this year. I am used to it with the state, California sucks, but even the feds got into the act this year (I usually got a return in the ballpark of a good dinner for two at a fine dining restaurant).

What I think happened is that for the first time I went over an income threshold to a higher bracket, except I work two jobs, so neither job was deducting at the higher level. Is that a reasonable explanation? Do employers deduct at the tax bracket level they expect you to be at based on what they are paying you, or is this some set percentage amount not tied to tax brackets that is just adjusted when we file our returns?

[OldGiants]

I just got F'd hard on taxes this year. I am used to it with the state, California sucks, but even the feds got into the act this year (I usually got a return in the ballpark of a good dinner for two at a fine dining restaurant).

What I think happened is that for the first time I went over an income threshold to a higher bracket, except I work two jobs, so neither job was deducting at the higher level. Is that a reasonable explanation? Do employers deduct at the tax bracket level they expect you to be at based on what they are paying you, or is this some set percentage amount not tied to tax brackets that is just adjusted when we file our returns?

Yes, employers only know about the income they are paying you. It is your responsibility to have the proper amount withheld. Payroll systems (my small area of expertise) are setup to comply with Fed and State regs and they only look at what they are paying you.

There are two solutions for you for the future. First, pay estimated taxes every quarter. This involves sending the IRS a check. Second, and likely your best alternative, is to have additional withholding taken out each pay check.

Let's assume you get paid twice per month and that you owe $240 to the Feds. Go to your payroll department, get a W-2 and fill in the form for an extra $10 each pay period. By year end, you'll be even based on the prior year.

Hope that helps for the future and that the tax guys don't get mean and ask for interest on what you didn't pay.

[Lathum]

I'm no expert but this sounds right. Wife and I are required to file jointly. Just for fun I did a separate return for each of us. If we were separate we would get back WAY more, but combined it pushes us into the next bracket and we get back a lot less.

[Suburban Rhythm]

Correct

Happened to us this year. My wife only works PT (nurse). She left one place in July. So, starting at the new location in August, they'd only know from the first $1 she earned there, not her income from the prior 7 months. So we ended up owing a few hundred - nothing too terrible, just a pain in the ass.

[digamma]

Congratulations on not lending the government extra money at no interest.

[CU Tiger]

Old Giants essentially nailed this.

Your payroll program looks at each check individually and extrapolates that number over the year. So if you get paid weekly and earn $2,000 that check assumes you have a $104k annual income and slots you accordingly. So in the second job when you made lets say $300/week. This payroll saw you as only earning $15,600 per year in income and taxed that portion accordingly. When in fact all of that money was on top of the other $104k (using my hypothetical example) and should have been taxed at 30%.

A simple solution is on job 2 to simply complete your form as single and none and let them withhold at a higher rate.

BTW this explains why folks get shocked when they get a bonus. A guy who makes $1k/week is used to a $52k/yr tax bracket. Then gets a $3,000 bonus and payroll sees him as a $150k and brakcets accordingly.

[Radii]

YThere are two solutions for you for the future. First, pay estimated taxes every quarter. This involves sending the IRS a check. Second, and likely your best alternative, is to have additional withholding taken out each pay check.

Alternatively, be aware that this is happening, set aside money every paycheck in an account that earns you some interest during the year, pay when due, have a little more cash than you would have had if withheld.

[Desnudo]

Congratulations on not lending the government extra money at no interest.

You could be earning .02% in savings account instead!

[henry296]

For me switching jobs helped because I had extra social security withheld because the second company didn't know what I had already contributed.

[MacroGuru]

I am in a shitty situation with child support. If I lower my exemptions I get less money to pay support and live in, if I stay where I am at, I have to pay the government.

It basically boils down to this. My base pay covers my living expenses and child support. My commission covers the taxes I owe at the end of the year and it might provide for some extra stuff, but mainly it goes towards covering the extra expenses (like my car repairs and such)

So I understand your pains..

[Bobble]

You could be earning .02% in savings account instead!

Or have paid off a year and three plus months credit card debt at, what, 15%?

[OldGiants]

Alternatively, be aware that this is happening, set aside money every paycheck in an account that earns you some interest during the year, pay when due, have a little more cash than you would have had if withheld.

However, they can hit you with penalties for not having enough withheld. I don't remember the number any more (and it has changed), but is around 80% of your liability must be paid through withholding or estimated tax payments.

[CU Tiger]

However, they can hit you with penalties for not having enough withheld. I don't remember the number any more (and it has changed), but is around 80% of your liability must be paid through withholding or estimated tax payments.


yeah but so long as it is only once every 3 years you can committ to doing quarterly esitimates the next year and tey wave the penalty. Then you do not even have to do the estimates so longn as you dont owe to much that next year.

At least thats what my CPA suggested a few years back and it worked out ok.

[Blackadar]

Unless anyone else had to stroke a check to Uncle Sam for an additional $5,900 this year, shut the heck up. :)





(kidding...but not about the $5,900)

[CU Tiger]

*raises hand*....damn near double that.

[Blackadar]

*raises hand*....damn near double that.

Ouch. That must be one hell of a 2nd job. I don't begrudge sending Uncle Sam what I owed him, though it did take a chunk out of the ole' checkbook.

[Pyser]

I'm no expert but this sounds right. Wife and I are required to file jointly. Just for fun I did a separate return for each of us. If we were separate we would get back WAY more, but combined it pushes us into the next bracket and we get back a lot less.

wait, so should married couples file separately?

[CU Tiger]

Ouch. That must be one hell of a 2nd job. I don't begrudge sending Uncle Sam what I owed him, though it did take a chunk out of the ole' checkbook.


Very nice commission check.
So all the incrementals (salary) didnt get hit at the right bracket.

[PilotMan]

wait, so should married couples file separately?

Typically only if you both have well paying jobs. Or at least that's what I've been told.

[britrock88]

Typically only if you both have well paying jobs. Or at least that's what I've been told.

MFJ is a better deal until the first income is in the 100-120 range and the second income is in the 80-100 range. Then MFS does you better.

[britrock88]

MFJ is a better deal until the first income is in the 100-120 range and the second income is in the 80-100 range. Then MFS does you better.

Let me be a little more precise. This is a result of the progressive bracketed structure the US uses for income tax rates. The "marriage penalty" is the result of the income ranges for single filers being more than half the income ranges for MFJ filers. When two people both earn incomes that are more than half the top of the MFJ income range but less than the top of the single income range at a particular percentage, there is a theoretical penalty to being married.

Trouble is, the IRS sees this and accounts for it with the MFS filing status, where the income ranges are exactly half of what the MFJ ranges are.

So the sort of people that this really applies to are those who are not yet married, and may choose to postpone marriage for the marginal benefit of having each of their incomes taxed separately at a lower marginal rate.

[DaddyTorgo]

Let me be a little more precise. This is a result of the progressive bracketed structure the US uses for income tax rates. The "marriage penalty" is the result of the income ranges for single filers being more than half the income ranges for MFJ filers. When two people both earn incomes that are more than half the top of the MFJ income range but less than the top of the single income range at a particular percentage, there is a theoretical penalty to being married.

Trouble is, the IRS sees this and accounts for it with the MFS filing status, where the income ranges are exactly half of what the MFJ ranges are.

So the sort of people that this really applies to are those who are not yet married, and may choose to postpone marriage for the marginal benefit of having each of their incomes taxed separately at a lower marginal rate.

Interesting.

[OldGiants]

yeah but so long as it is only once every 3 years you can committ to doing quarterly esitimates the next year and tey wave the penalty. Then you do not even have to do the estimates so longn as you dont owe to much that next year.

At least thats what my CPA suggested a few years back and it worked out ok.

Yes, when I checked today I found this out.

[DaddyTorgo]

Ugh...well that's done.