Tax witholding/just got married

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sixpercentninja
Posts: 41
Joined: Mon Mar 11, 2019 2:11 am

Tax witholding/just got married

Post by sixpercentninja »

My wife and I just got married, and I'm trying to figure out next steps for tax witholding/W4 changes.

1) Do we both have to immediately update our W4s? What happens if we're late to update by a few paychecks? What happens if we don't at all?

2) We both have a job and no kids, and would be in the 35% bracket for MFJ if we went that route. Should we? We don't have any special circumstances so is MFS a realistic consideration at all?

3) I keep hearing about this "marriage penalty" concept. What is it and should I expect it?

Thanks in advance
milktoast
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Re: Tax witholding/just got married

Post by milktoast »

W4 is just a way of estimating how much to withhold.

I’m married with two kids and earn significantly more than my spouse. To get the withholding in the ballpark I put down single with 0 dependents.

If you both have similar income the W4 marked as MFJ might be closer. Anyway, play with it until you get the amount of refund or tax due that you want. Hopefully you’ll be married and employed plenty long to get it dialed in.
lazynovice
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Location: Denver area. Former Texan.

Re: Tax witholding/just got married

Post by lazynovice »

1. You don’t ever have to update the W-4. Like the previous poster, my husband and I both claimed zero and sometimes added more withholding to get our overall withholding right. If you have non-payroll income (dividends, interest, etc) then you end up needing to adjust a bit.

2. MFS is usually used when one member of the couple has income based repayment on student loans or other unique situations. You could run your returns both ways to see which is better.
https://www.investopedia.com/terms/m/mfs.asp

3. The marriage penalty has been largely eliminated but it still exists in some form. There are also marriage benefits.

https://www.investopedia.com/terms/m/mfs.asp

Congrats on your marriage!
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leeks
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Re: Tax witholding/just got married

Post by leeks »

You don't have to do anything right now. You might owe more or less than what is being withheld but you can wait until tax time to sort that out and then adjust your withholding then if necessary. Tax software when you file next year can be used to calculate whether filing jointly or separately is better.

(if you want, you can put the numbers for this year's income into the 2020 turbotax desktop version to get estimates)
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sixpercentninja
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Re: Tax witholding/just got married

Post by sixpercentninja »

Thank you everyone for your responses so far.

A couple of more noob questions

1) When we say MFJ, that means literally between her and I we only need to submit one form/one copy to the IRS for tax returns, right? Or do we both have to file our own copies/papers still, the only difference being we need to mark "MFJ" on one of the check boxes or something...

And if we file MFS, that would mean two sets of papers/returns (as if we were still single and filing single-ly)....right?

2) If we file MFJ, we both have to choose the same option right? (I guess this goes back to the question #1, do we still file two sets of paper or just one). I know if we file MFS, we DO have to choose the same option

3) Thank you all for clarifying the rules around updating W4, and the difference between MFJ and MFS. It mostly makes sense to me now. I mostly just have one main concern now: while I'm mostly convinced the MFJ makes the most amount of sense for my wife and I (especially after TCJA was passed a few years ago), there are still some aspects on the marriage penalty that are hazy to me

-She historically has done itemized deductions as that had been more beneficial to her (e.g. last year she claimed a sibling as dependent. Though going forward that won't be the case anymore. She does have (and still has) a house though).
-I have always done standard deduction.
-In my research I've read that "While the TCJA increased the standard deductions and removed the marriage penalty for all except the highest bracket, if you're both high income earners and also pay significant property taxes the TCJA cap on SALT deductions may still imply a meaningful marriage penalty net-net."

Another one: "One caveat to the marriage penalty that was introduced by the new tax law though is that you are limited to deducting 10K worth of SALT regardless of if you are MFJ or single. It's possible that if you were to file single, that full deduction amount for one or both people would put that person over the individual standard deduction amount and incentivize itemizing, but the same 10K limit applied to a MFJ return is a much smaller portion of that higher MFJ standard deduction.

I'm not fully understanding these two points. Can someone rephrase? What's the takeaway and how does it affect whether I choose MFJ or MFS?
runner540
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Re: Tax witholding/just got married

Post by runner540 »

sixpercentninja wrote: Sun Jun 13, 2021 6:48 pm Thank you everyone for your responses so far.

A couple of more noob questions

1) When we say MFJ, that means literally between her and I we only need to submit one form/one copy to the IRS for tax returns, right? Or do we both have to file our own copies/papers still, the only difference being we need to mark "MFJ" on one of the check boxes or something...

And if we file MFS, that would mean two sets of papers/returns (as if we were still single and filing single-ly)....right?

2) If we file MFJ, we both have to choose the same option right? (I guess this goes back to the question #1, do we still file two sets of paper or just one). I know if we file MFS, we DO have to choose the same option

3) Thank you all for clarifying the rules around updating W4, and the difference between MFJ and MFS. It mostly makes sense to me now. I mostly just have one main concern now: while I'm mostly convinced the MFJ makes the most amount of sense for my wife and I (especially after TCJA was passed a few years ago), there are still some aspects on the marriage penalty that are hazy to me

-She historically has done itemized deductions as that had been more beneficial to her (e.g. last year she claimed a sibling as dependent. Though going forward that won't be the case anymore. She does have (and still has) a house though).
-I have always done standard deduction.
-In my research I've read that "While the TCJA increased the standard deductions and removed the marriage penalty for all except the highest bracket, if you're both high income earners and also pay significant property taxes the TCJA cap on SALT deductions may still imply a meaningful marriage penalty net-net."

Another one: "One caveat to the marriage penalty that was introduced by the new tax law though is that you are limited to deducting 10K worth of SALT regardless of if you are MFJ or single. It's possible that if you were to file single, that full deduction amount for one or both people would put that person over the individual standard deduction amount and incentivize itemizing, but the same 10K limit applied to a MFJ return is a much smaller portion of that higher MFJ standard deduction.

I'm not fully understanding these two points. Can someone rephrase? What's the takeaway and how does it affect whether I choose MFJ or MFS?
Please use the IRS withholding calculator now, make adjustments to your W4s and check it again in the fall to make sure you’re on track. https://www.irs.gov/individuals/tax-wit ... -estimator
1) MFJ: you file one return with both names and SSN
trueblueky
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Re: Tax witholding/just got married

Post by trueblueky »

sixpercentninja wrote: Sun Jun 13, 2021 6:48 pm Thank you everyone for your responses so far.

A couple of more noob questions

1) When we say MFJ, that means literally between her and I we only need to submit one form/one copy to the IRS for tax returns, right? Or do we both have to file our own copies/papers still, the only difference being we need to mark "MFJ" on one of the check boxes or something...

And if we file MFS, that would mean two sets of papers/returns (as if we were still single and filing single-ly)....right?
MFJ is one tax return with all the income and deductions for both.

MFS is two returns -- one return for each. The rules for MFS state that if one itemizes, the other must do the same. Either both itemize, or both take the standard deduction.

2) If we file MFJ, we both have to choose the same option right? (I guess this goes back to the question #1, do we still file two sets of paper or just one). I know if we file MFS, we DO have to choose the same option
MFJ, there's only one return, so one election of standard deduction or itemized

3) Thank you all for clarifying the rules around updating W4, and the difference between MFJ and MFS. It mostly makes sense to me now. I mostly just have one main concern now: while I'm mostly convinced the MFJ makes the most amount of sense for my wife and I (especially after TCJA was passed a few years ago), there are still some aspects on the marriage penalty that are hazy to me

-She historically has done itemized deductions as that had been more beneficial to her (e.g. last year she claimed a sibling as dependent.
If you have a dependent, you can claim them. If doesnt matter whether you file MFS or MFJ
Though going forward that won't be the case anymore. She does have (and still has) a house though).
-I have always done standard deduction.
-In my research I've read that "While the TCJA increased the standard deductions and removed the marriage penalty for all except the highest bracket, if you're both high income earners and also pay significant property taxes the TCJA cap on SALT deductions may still imply a meaningful marriage penalty net-net."

Another one: "One caveat to the marriage penalty that was introduced by the new tax law though is that you are limited to deducting 10K worth of SALT regardless of if you are MFJ or single. It's possible that if you were to file single, that full deduction amount for one or both people would put that person over the individual standard deduction amount and incentivize itemizing, but the same 10K limit applied to a MFJ return is a much smaller portion of that higher MFJ standard deduction.

I'm not fully understanding these two points. Can someone rephrase? What's the takeaway and how does it affect whether I choose MFJ or MFS?
For most couples, MFJ is better. Some states have provision that change that. (Ohio is one). Run it both ways next year.
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leeks
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Re: Tax witholding/just got married

Post by leeks »

You don't decide MFJ vs MFS until you are actually sending in your taxes. So you just run it both ways at tax time and pick whichever version has lowest taxes. You can check every year which is best.
Thesaints
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Re: Tax witholding/just got married

Post by Thesaints »

sixpercentninja wrote: Sun Jun 13, 2021 4:52 pm My wife and I just got married, and I'm trying to figure out next steps for tax witholding/W4 changes.

1) Do we both have to immediately update our W4s? What happens if we're late to update by a few paychecks? What happens if we don't at all?
No. You don't even have to tell them you got married.
What you have to be careful to is having enough tax withheld, but it is possible to make quarterly payments of estimated taxes and avoid the hassle of filing two W-4's.
2) We both have a job and no kids, and would be in the 35% bracket for MFJ if we went that route. Should we? We don't have any special circumstances so is MFS a realistic consideration at all?

3) I keep hearing about this "marriage penalty" concept. What is it and should I expect it?
The penalty begins with a combined taxable income of $628,301 for 2021, assuming spouses make exactly the same money. But one can be penalized at lower incomes depending on the income nature (i.e. dividends, capital gains, etc.).
Depending on your State, you might also end up paying more.
Obviously, when incomes are very asymmetric, there can be no marriage penalty, or the threshold might be much higher. In fact, if a spouse as zero income, there never is any penalty, only advantages.
miamivice
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Re: Tax witholding/just got married

Post by miamivice »

This takes me back to when I just got married many moons ago. The HR person at the company got really mad at me for not updating my W4. I didn't want to update it until things settled out (we also bought a house the same year) and I didn't think it was any of the HR person's business how we filed taxes.
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FiveK
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Re: Tax witholding/just got married

Post by FiveK »

sixpercentninja wrote: Sun Jun 13, 2021 4:52 pm My wife and I just got married, and I'm trying to figure out next steps for tax witholding/W4 changes.
The first step should be estimating your total tax liability for 2021. After you have that, compare to the amount that will be withheld if you do nothing, then adjust your withholding (or not) as appropriate.

Are you comfortable in your ability to estimate your 2021 tax liability?
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grabiner
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Re: Tax witholding/just got married

Post by grabiner »

miamivice wrote: Sun Jun 13, 2021 7:54 pm This takes me back to when I just got married many moons ago. The HR person at the company got really mad at me for not updating my W4. I didn't want to update it until things settled out (we also bought a house the same year) and I didn't think it was any of the HR person's business how we filed taxes.
Officially, the IRS requires you to update your W-4 immediately after any change which significantly increases the amount of tax you need withheld. You certify on your W-4 that you are entitled to the withholding claimed by your form, and if that is no longer true, you need to correct the certification. HR was unhappy because the IRS does not want employers to participate in underwithholding; it checks some W-4s and issues lock-in letters specifying minimum withholding if it believes employees are requesting too little. It might happen that changing from single to married, and simultaneously changing the number of allowances, would not change the dollar amount, but it would give the IRS the necessary information to question whether you were entitled to the number of allowances you claimed.
Wiki David Grabiner
Thesaints
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Re: Tax witholding/just got married

Post by Thesaints »

grabiner wrote: Sun Jun 13, 2021 10:41 pm Officially, the IRS requires you to update your W-4 immediately after any change which significantly increases the amount of tax you need withheld. You certify on your W-4 that you are entitled to the withholding claimed by your form, and if that is no longer true, you need to correct the certification. HR was unhappy because the IRS does not want employers to participate in underwithholding; it checks some W-4s and issues lock-in letters specifying minimum withholding if it believes employees are requesting too little. It might happen that changing from single to married, and simultaneously changing the number of allowances, would not change the dollar amount, but it would give the IRS the necessary information to question whether you were entitled to the number of allowances you claimed.
On a related note, in cases such as mine, with the two spouses having rather different incomes, W-4 filing seems to aim at equalizing withholdings, increasing them for the less well paid spouse and reducing them for the well-paid one.
This goes totally against how we have agreed to split our tax load, so we have not filed at all and our withholdings are calculated as if we were singles.
We also do quarterly payments, but those mostly cover income from stocks.
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FiveK
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Re: Tax witholding/just got married

Post by FiveK »

Thesaints wrote: Mon Jun 14, 2021 1:29 am ... with the two spouses having rather different incomes, W-4 filing seems to aim at equalizing withholdings, increasing them for the less well paid spouse and reducing them for the well-paid one.
The Form W-4 allows one to reduce withholding at Step 3 or increase withholding at Step 4c, so it's very much within a person's control to get the withholding desired.
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grabiner
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Re: Tax witholding/just got married

Post by grabiner »

Thesaints wrote: Mon Jun 14, 2021 1:29 am
grabiner wrote: Sun Jun 13, 2021 10:41 pm Officially, the IRS requires you to update your W-4 immediately after any change which significantly increases the amount of tax you need withheld. You certify on your W-4 that you are entitled to the withholding claimed by your form, and if that is no longer true, you need to correct the certification. HR was unhappy because the IRS does not want employers to participate in underwithholding; it checks some W-4s and issues lock-in letters specifying minimum withholding if it believes employees are requesting too little. It might happen that changing from single to married, and simultaneously changing the number of allowances, would not change the dollar amount, but it would give the IRS the necessary information to question whether you were entitled to the number of allowances you claimed.
On a related note, in cases such as mine, with the two spouses having rather different incomes, W-4 filing seems to aim at equalizing withholdings, increasing them for the less well paid spouse and reducing them for the well-paid one.
The purpose isn't to equalize withholding, but to get the adjustments right. If the couple is in the 22% bracket, but the lower-earning spouse's salary alone would be in the 12% bracket, then a $1000 deduction should be claimed by the higher-earning spouse so that it reduces withholding by the correct $220 rather than $120. Conversely, $1000 in untaxed income such as interest should also be claimed by the higher-earning spouse so that it causes extra withholding of $220. (The old W-4 with allowances worked the same way. Every allowance was treated as a decrease in taxable salary equal to the exemption amount for dependents. Again, to make that the right reduction in tax withheld, it had to be claimed by the higher-earning spouse.)
This goes totally against how we have agreed to split our tax load, so we have not filed at all and our withholdings are calculated as if we were singles. We also do quarterly payments, but those mostly cover income from stocks.
And this is appropriate if you keep separate finances. You have always been able to file a W-4 as married but withheld at the rate for singles, since that is a higher rate.
Wiki David Grabiner
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