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Witholdings significantly lower (proportionally) for 2019. What happened?!

Forum|Forum|6 years ago
January 31, 2020
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So my wife and I file jointly, both work, and both claim Married with 1 allowance (each) on our W-4. Been like that for years.

Last year (Tax year 2018), we made a gross income of about $100,000 (taxable $76k) and with the Married/1 withholdings, resulting in our withholdings being $1,000 greater than our tax liability (I am ignoring credits and deductions, so I can compare apples to apples, JUST looking at W-2 withholdings vs. Tax Liability). We took a standard deduction.

This year, we earned a gross income of $125k (taxable $101k). Same filing status, standard deduction, nothing has changed at all, except our income has gone up. This year, our withholdings gave us a $2,300 shortfall.

What the heck happened? The new tax laws were in effect last year, so I can't blame that. I clearly have to increase my withholdings, but WHY? I understand we've moved into a higher tax bracket for $23,000 of the $25,000 extra we earned this year, but with a shortfall as significant as we had, even if that $23,000 was taxed at the lower, 12% rate, we'd still be at least $1,000 short.

Best answer by SusanY1

The tax law changes of 2018 brought with them a lot of unexpected consequences, among them were some significant issues with withholdings in both 2018 and 2019.

The form that governs withholdings was recently updated to address this problem, and I would encourage you and your wife to complete the new version and submit it to your employers.

You can find the new version here: IRS Form W-4, 2020.

Assuming that your income was roughly equally between the two of you, the withholding tables likely saw each of you as making income $50,000 without regard for the fact that the other spouse was also a wage earner. This would have resulted in too little withholding.

TurboTax also has a withholding calculator, which is currently being updated to be adapted to this new format. I would encourage you to make a note on your calendar or a reminder on your smartphone or other device to make use of the tool around the middle of the year.

This tool incorporates data from your paystubs to give you a check-up to see how your withholding is working for you so far. It's a great way to get some assurance that what you are doing is working the way that you want it to, and it gives you some control over the results you have at the end of the year.

TurboTax Withholding Calculator.

This doesn't make things better for you for 2019, and I am sorry that this happened to you.

SusanY1Answer

The tax law changes of 2018 brought with them a lot of unexpected consequences, among them were some significant issues with withholdings in both 2018 and 2019.

The form that governs withholdings was recently updated to address this problem, and I would encourage you and your wife to complete the new version and submit it to your employers.

You can find the new version here: IRS Form W-4, 2020.

Assuming that your income was roughly equally between the two of you, the withholding tables likely saw each of you as making income $50,000 without regard for the fact that the other spouse was also a wage earner. This would have resulted in too little withholding.

TurboTax also has a withholding calculator, which is currently being updated to be adapted to this new format. I would encourage you to make a note on your calendar or a reminder on your smartphone or other device to make use of the tool around the middle of the year.

This tool incorporates data from your paystubs to give you a check-up to see how your withholding is working for you so far. It's a great way to get some assurance that what you are doing is working the way that you want it to, and it gives you some control over the results you have at the end of the year.

TurboTax Withholding Calculator.

This doesn't make things better for you for 2019, and I am sorry that this happened to you.

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T

tendonutAuthor

Thanks!

Thankfully, between our Child Credit and my wife maxing out the American Opportunity Credit ultimately gives us a $2,200 refund, but we will definitely have to rework our W-4's using the new worksheet the IRS (and TurboTax) provide us.

LeonardS

Yes, you are correct you should file an updated W-4 with your employer. The updated W-4 will allow your employer to withhold at an amount that matches your situation.

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