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Taxes

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Not sure WTF happened this year but wife and I are getting nailed on our Federal. No changes from last year with our withholding class, wages up a bit, deductions about the same. Something happened though as less money was withheld during the year. Tax guy says that he is seeing more of this happening. I thought what was taken out is straight forward based on your taxable income and W4 class.
 
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buckeyebri said:
Not sure WTF happened this year but wife and I are getting nailed on our Federal. No changes from last year with our withholding class, wages up a bit, deductions about the same. Something happened though as less money was withheld during the year. Tax guy says that he is seeing more of this happening. I thought what was taken out is straight forward based on your taxable income and W4 class.
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It should be a pretty straight-forward calculation -- they changed the withholding tables early in 2018, so there were a bunch of people in that situation this time last year, but I have not seen that this year. Did anything change with pay structure? Less bonus/commission vs a higher salary? Bonus/commission pay gets hit with a flat 22% withholding rate, so I often see that the higher withholding there will make up for a shortage of withholding on salary pay, so if salary went up while bonuses went down, that can throw things off.
 
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I've been withheld at 25% on bonuses in the past, I'll be honest that I haven't looked closely the last couple years... (I mean, at the time it happens its gonna come out in the wash anyway, 3% difference isn't going to set off alarm bells for me, I'd be like, "oh, that's whatever it is I guess")
 
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There are two different way to withhold on supplemental income -- either the flat rate method of 22% (used to be 25% before the TCJA went into effect and cut the 25% bracket down to the 22% bracket) or the alternative method of adding the bonus amount into a normal paycheck, figuring what the taxes would be on that additional income, and then withholding on the bonus based on the additional withholding calculated. Most places use the flat rate because it is easier, but YMMV.

And that is just federal income tax -- throw in the additional 7.65% for FICA plus state and local taxes + Medicare surtax if it applies and it can get to 40% pretty quickly.

And of course some employers just ignore those rules altogether and add it into your regular check. Or pay it as a separate check with normal withholding.
 
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Fungo Squiggly said:
There are two different way to withhold on supplemental income -- either the flat rate method of 22% (used to be 25% before the TCJA went into effect and cut the 25% bracket down to the 22% bracket) or the alternative method of adding the bonus amount into a normal paycheck, figuring what the taxes would be on that additional income, and then withholding on the bonus based on the additional withholding calculated. Most places use the flat rate because it is easier, but YMMV.

And that is just federal income tax -- throw in the additional 7.65% for FICA plus state and local taxes + Medicare surtax if it applies and it can get to 40% pretty quickly.

And of course some employers just ignore those rules altogether and add it into your regular check. Or pay it as a separate check with normal withholding.
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sigh... is it worth fighting as a large company?
 
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Fungo Squiggly said:
It should be a pretty straight-forward calculation -- they changed the withholding tables early in 2018, so there were a bunch of people in that situation this time last year, but I have not seen that this year. Did anything change with pay structure? Less bonus/commission vs a higher salary? Bonus/commission pay gets hit with a flat 22% withholding rate, so I often see that the higher withholding there will make up for a shortage of withholding on salary pay, so if salary went up while bonuses went down, that can throw things off.
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Salary changed ~3k and got some bonuses but they were taxed at a higher rate. I made more this year but had less taxes taken out than last year. Wifes withholdings were stupid way off. I’m now being told that even though we both claim married 0 we should add another 50-100 each pay period in addition. We had to pay a penalty this year because of this. I feel like my wife’s firm fucked up big time on us.
 
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buckeyebri said:
Salary changed ~3k and got some bonuses but they were taxed at a higher rate. I made more this year but had less taxes taken out than last year. Wifes withholdings were stupid way off. I’m now being told that even though we both claim married 0 we should add another 50-100 each pay period in addition. We had to pay a penalty this year because of this. I feel like my wife’s firm fucked up big time on us.
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Ah, there's your problem. "Married" filing status on the W-4 fucks up EVERYTHING when both spouses are working -- they withhold for you as if your income is the only income and for her as if her income is the only income. That status really only works when just one spouse is working. Why it wasn't a problem in previous years, I don't know.

How much was the underpayment penalty? We aren't required to calculate it and the IRS doesn't seem to be inclined to bill for it if it is under $100 -- so when I see someone with an $80 underpayment penalty or less, I suppress the shit out of it. Let the IRS bill for it if they want it.
 
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Fungo Squiggly said:
Ah, there's your problem. "Married" filing status on the W-4 fucks up EVERYTHING when both spouses are working -- they withhold for you as if your income is the only income and for her as if her income is the only income. That status really only works when just one spouse is working. Why it wasn't a problem in previous years, I don't know.

How much was the underpayment penalty? We aren't required to calculate it and the IRS doesn't seem to be inclined to bill for it if it is under $100 -- so when I see someone with an $80 underpayment penalty or less, I suppress the shit out of it. Let the IRS bill for it if they want it.
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Ah yeah, my wife messed this up once, luckily I did not, and I claim zero (single) to make sure I don't have to pay at the end... (if she does hers right its usually 1-2K overpay) so I had that cushion (not that I want to get back a big return or anything, just want to get back some and not have to pay any. But, that one cut it close.
 
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Fungo Squiggly said:
Ah, there's your problem. "Married" filing status on the W-4 fucks up EVERYTHING when both spouses are working -- they withhold for you as if your income is the only income and for her as if her income is the only income. That status really only works when just one spouse is working. Why it wasn't a problem in previous years, I don't know.

How much was the underpayment penalty? We aren't required to calculate it and the IRS doesn't seem to be inclined to bill for it if it is under $100 -- so when I see someone with an $80 underpayment penalty or less, I suppress the shit out of it. Let the IRS bill for it if they want it.
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Seems coincidental to the reform in 2018. We were fine until then....

I think penalty was $40
 
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