Spin Off to Getting Married and Taxes

SummerBoston10

I saw some people bring up the "marriage penalty" in the other thread and I have a couple of questions about this and the experiences of the married ladies here. 

I completed a new W-4 after we were married.  There is a two-earners worksheet on the second page and when I filled this out it told me that I should withhold an extra $600 from each of my paychecks for the remainder of the year.  This equates to our tax liability being around $6,000 higher than before we were married.  Does anyone know if these worksheets are really accurate?  That just seems like a huge marriage penalty if you ask me.  

I have always filled out my W-4 with 2 exemptions so that when I file my taxes, I end up owing or receiving back no more than around $100.  Instead of having the additional amount withheld, I changed my exemptions to 0 but I don't know if it will be enough.  We would rather not give the government an interest free loan so we will pay the increased tax bill in 2011 if need be but I'm just wondering if we should really be expecting to have to pay $5,000+ for our 2010 tax return. 

For some background, I make a salary of just a little over twice what my husband makes.  He owns his own business and pays himself a decent salary but not as much as he could since he likes to re-invest the money into the business.  He could lower his salary if that would help us from a tax perspective. 

I would appreciate hearing about people's experiences with this! 

pirategal03

You can run your numbers here: http://www.taxact.com/ to get an idea for your particular situation. 

LesPaul

The 'marriage penalty' varies greatly depending on your particular circumstances, including income, dependents, itemizing vs. standard deduction, etc.  I would suggest purchasing software such as TaxCut (H&R Block AtHome) or TurboTax.  You can enter your 2009 data separately, then prepare a 'what if' return as if you were married to see the differences.  The software will compare year vs year and married vs separate to highlight what will change.  Self-employed individuals add another dimension to the planning/estimating scenario.  If you're not comfortable understanding the software and what's happening, I would recommend hiring a CPA.  If you are students, or recently out of school, go to your university business school for help, or consult a VITA (volunteer income tax assistance) organization.

justjenn722

It's very possible that, if you are making significantly more than H, then he is in a different tax bracket as you.  Yes, at the end of the day your income gets reported together on your return and taxed accordingly at whatever bracket your combined income falls.  However your withholding is only determined by the individual's W-2, it does not take into account any other W-2's that will be reported at the end of the year.

Example: H gets a W-2 for $25k, his withholding has been calcuated as if he is in the 15% tax bracket.  You get a W-2 for $50k, your withholding has been calculated as if you are in the 25% tax bracket. 

Therefore at the end of the year when you file your MFJ return, ALL of the income will be in the 25% tax bracket ($75k), but H's w-2 only withheld enough for the 15% tax bracket...

I would definitely rec. sitting down with an accountant, but hopefully this helps a little.

SummerBoston10

Thank you for the responses.

My husband uses a CPA to prepare his returns since he has his business to throw into the mix.  I have always used Turbotax and done my taxes myself.  I will check out Turbotax and see if we can get a better estimate on what to expect at the end of the year.  

The CPA he uses specializes in small businesses but I assume that he will be doing our joint return this year.  It might be best to just make an appointment with him now instead of waiting until next year.   Ugh these are the "not fun" parts of being married!!   

PirateintheSky

I'm so very happy I'm not the only one concerned/mystified by this process.  I really wish it was something that stayed seperate like our socials and and stuff...

TurtlesAllTheWayDown

Would married, filing separately help at all? FI and I are in different tax brackets and this is one thing I worry about.

frogurt814

I'm also confused about this.

I am looking at the W-4 right now and there is a section with 3 boxes: Single, Married, and Married but withhold at higher Single rate.  What does that mean?  If I check the last box, does that mean more money will be taken out of my check every month?

I currently claim 0 allowances and plan to continue doing that.

This is really confusing.

LesPaul

In Response to <a href="http://forums.theknot.com/Sites/theknot/Pages/Main.aspx/wedding-boards_etiquette_spin-off-getting-married-taxes?plckFindPostKey=Cat:Wedding BoardsForum:9Discussion:42f17921-2be0-4191-9638-9208f4632a08Post:c6ec1541-f573-4fd5-9b49-a6df31dec4a6">Re: Spin Off to Getting Married and Taxes</a>:
[QUOTE]Would married, filing separately help at all? FI and I are in different tax brackets and this is one thing I worry about.
Posted by msmerymac[/QUOTE]

Married/separate is rarely a better result.  You do not get to use the more advantageous married/joint brackets, the standard deduction is lower, and there are some other differences I can't remember.  In practice, I have only seen one instance where it was better than married/joint, and that couple had unusually high medical expenses.  If you use the software it will give you a comparison of married/joint vs. married/separate, or your CPA should be able to give you this analysis.

TurtlesAllTheWayDown

Thanks Les! I just did some more research and it came up that married/joint is almost always better because there are a lot of things you can't get deductions for at the married/separate level (like education). I mean, with our combined income, I doubt we'll qualify for the deductions I've been getting anyway, but oh well. I'll probably still have them withhold at the single rate for the rest of the year and see how it all pans out during tax season.

I've been using Turbo Tax and got FI hooked on it too (after he was using the long paper form for years).

kristinanddan

In Response to <a href="http://forums.theknot.com/Sites/theknot/Pages/Main.aspx/wedding-boards_etiquette_spin-off-getting-married-taxes?plckFindPostKey=Cat:Wedding%20BoardsForum:9Discussion:42f17921-2be0-4191-9638-9208f4632a08Post:57f8061c-1c48-4444-aa8c-a563fe2a23bd">Re: Spin Off to Getting Married and Taxes</a>:
[QUOTE]I'm also confused about this. I am looking at the W-4 right now and there is a section with 3 boxes: Single, Married, and Married but withhold at higher Single rate.  What does that mean?  <strong>If I check the last box, does that mean more money will be taken out of my check every month?</strong> I currently claim 0 allowances and plan to continue doing that. This is really confusing.
Posted by frogurt814[/QUOTE]

Yes, it means they'll withhold the same amount they did before you were married. I believe you're only supposed to withhold at the married rate when one spouse works and the other doesn't or earns very little (but I'm sure there are a ton of variants to that).

bookgal77

I'm interested in the comment that was made about filing married / separate was only seen to be better when one has unusually high medical expenses.

I am getting married in 2010, make a higher income than my FI, and I do have VERY high medical expenses. Over $10,000 in 2010 alone. About $5,000 in 2009 and it helped increase my tax refund exponentially. I know I will go over all of this with a tax person when the time comes, but since it was mentioned I thought I would just throw that out there and get the thoughts of those who are in the know.

Thanks!