Tax bill split between spouses

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Goal33
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Re: Tax bill split between spouses

Post by Goal33 »

Monsterflockster wrote: Thu Apr 08, 2021 9:43 am On another note... you know this is controversial and tbh splitting finances like this is crazy to me. So do you make your wife Venmo you half the bill when you swing gas up or go through the drive thru or you order separately? Best of luck to ya.
Somewhat related... we have friends that do this as well. Going out to eat with them is a nightmare. They bring up their income ratios and how they're going to split the check when we go out to dinner with them... It makes it more complicated for them because we are just throwing down a single credit card for our share :oops:
niceguy7376
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Re: Tax bill split between spouses

Post by niceguy7376 »

Say her income is 100K. Assume your income as 100k.
Then do the taxes and see what is the tax bill (not what is owed). Split those amounts.
Now do the true return. Whatever is now increased is all due to your income.
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JoeRetire
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Re: Tax bill split between spouses

Post by JoeRetire »

DreamsOfRetiring wrote: Wed Apr 07, 2021 8:44 amOur income ratio is 4:1 ( me:her), so for any large expense we split it in that ratio.

The controversial part is splitting tax bills. Whats an equitable split of taxes?
Why not 4:1 ?
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teen persuasion
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Re: Tax bill split between spouses

Post by teen persuasion »

Not exactly the same scenario, but we have to do some coordination between our tax returns and our college student's returns, to maximize total family tax refunds.

To maximize AOTC (which a dependent college student cannot claim themselves) we have the student claim a calculated portion of their scholarships as taxable income on their tax return. This may or may not increase the student's federal tax depending on standard deduction in current use, but always increases their state tax owed. Then we claim the (larger) credit. As the student voluntarily increased their tax liability so that we (parents) could reduce ours, I feel it's only fair to pay the student's tax on their behalf.

I do always make sure to maximize our family net tax situation. If the tax cost on one side was greater than the credit gained on the other, I'd obviously change tactics.
momvesting
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Re: Tax bill split between spouses

Post by momvesting »

I would use the IRS withholding calculator, each of you do the calculation as if you were single or MFS. Withhold the exact amount needed. Then, since filing MFJ would create a refund, use that refund to do something fun together, like a weekend getaway (or a fancy dinner, not sure how much money we are talking about) so there is really no splitting of the refund.
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ResearchMed
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Re: Tax bill split between spouses

Post by ResearchMed »

momvesting wrote: Thu Apr 08, 2021 1:39 pm I would use the IRS withholding calculator, each of you do the calculation as if you were single or MFS. Withhold the exact amount needed. Then, since filing MFJ would create a refund, use that refund to do something fun together, like a weekend getaway (or a fancy dinner, not sure how much money we are talking about) so there is really no splitting of the refund.
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RM
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Hyperchicken
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Re: Tax bill split between spouses

Post by Hyperchicken »

ResearchMed wrote: Thu Apr 08, 2021 1:42 pm
momvesting wrote: Thu Apr 08, 2021 1:39 pm I would use the IRS withholding calculator, each of you do the calculation as if you were single or MFS. Withhold the exact amount needed. Then, since filing MFJ would create a refund, use that refund to do something fun together, like a weekend getaway (or a fancy dinner, not sure how much money we are talking about) so there is really no splitting of the refund.
:happy

We have a winner!

RM
Over-withholding on purpose to get a refund sounds pretty un-Bogleheadish to me. ;)

And the refund will likely be in the thousands range. Double plus un-Bogleheadish.
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ResearchMed
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Re: Tax bill split between spouses

Post by ResearchMed »

Hyperchicken wrote: Thu Apr 08, 2021 2:17 pm
ResearchMed wrote: Thu Apr 08, 2021 1:42 pm
momvesting wrote: Thu Apr 08, 2021 1:39 pm I would use the IRS withholding calculator, each of you do the calculation as if you were single or MFS. Withhold the exact amount needed. Then, since filing MFJ would create a refund, use that refund to do something fun together, like a weekend getaway (or a fancy dinner, not sure how much money we are talking about) so there is really no splitting of the refund.
:happy

We have a winner!

RM
Over-withholding on purpose to get a refund sounds pretty un-Bogleheadish to me. ;)
The suggestion was, if I understood correctly, was that they each calculate their taxes AS IF they filed separately or MFJ. This gives them the basis to make any adjustment vs. MFJ

If I misunderstood, then, to be clear, i absolutely agree that they should not pay "extra" because they are dealing with some adjustments personally, beyond the IRS.

RM
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neverpanic
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Re: Tax bill split between spouses

Post by neverpanic »

WarAdmiral wrote: Wed Apr 07, 2021 9:26 pm
DreamsOfRetiring wrote: Wed Apr 07, 2021 8:44 am This is a bit controversial. My spouse and I keep our financial accounts separate. We agreed to keep things separate so we both have practice maintaining our own finances and investments. We are open about money discussions, and we co-own all large assets. Our income ratio is 4:1 ( me:her), so for any large expense we split it in that ratio.

The controversial part is splitting tax bills. Whats an equitable split of taxes? Please dont take this to mean I am trying to get my spouse to pay , but just theoretically has anyone approached the math?

Here are the numbers:
2020 - Income ~ 500K ( 4:1 ) W2s
Rough tax bill - Fed + State = 150K

Marginal Fed - 35%

Her withheld ~ 12K
Mine withheld ~ 138K
MFJ.

Your income: $400K
Her Income: $100K

Assuming no standard deductions, 401k etc

Tax Brackets:
$0 to $19,900 - 10% of taxable income
$19,901 to $81,050 - $1,990 plus 12% of the amount over $19,900
$81,051 to $172,750 - $9,328 plus 22% of the amount over $81,050
$172,751 to $329,850 - $29,502 plus 24% of the amount over $172,750

@172K, her $86K income, your 86k income. taxes are equal - $29502/2 =~ $15k
@200K ( her $14k + your $14k), taxes are 24% of 14k each. - $3K

Her total tax due: 18K

Your tax due until now: 18K

At this point, her income of $100k is exhausted and your first $100k are accounted for. After this from $200k to $329k you pay 24% tax, then until $500K - it's all your taxes as per below brackets.

$329,851 to $418,850 - 32% of the amount over $329,850
$418,851 to $628,300 - 35% of the amount over $418,850
$628,301 or more, 37% of the amount over $628,300
Though unusual and I understand why you would consider it controversial, the math isn't really complicated at all. Based upon the agreement you have outlined, your taxable earnings are your responsibility. Since you have elected to file jointly, while the marginal tax rate for your combined income is 35%, while yours alone would be 32% and hers would be 22%. MFJ gives you a nice discount on the overall tax bill vs both of you filing single. I think war admiral and an_asker nailed the numbers pretty effectively. If not correct to the penny, that is the appropriate logic for your situation, I would argue.
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DoubleComma
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Re: Tax bill split between spouses

Post by DoubleComma »

OP - out of curiosity, why not adopt a hybrid joint/personal account strategy. DW and I did this for several years and it simplified a lot for us.

Deposit 100% of joint earnings into a single account that pays for 100% of joint expenses. No need to establish a ratio, that created when the deposits are made.

Secondarily, open a personal account each and from the monthly joint account transfer some set amount in for you to each spend at your individual discretion. This way neither of you are looking over the shoulder of each other for every <$100 purchase, but major purchases and joint expenses can still me managed from the joint account.
LeftCoastIV
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Re: Tax bill split between spouses

Post by LeftCoastIV »

Our accountant prepares a view if we both filed individually, although if filing jointly is the most tax effective, we do that. The single filer views are helpful to sort out what accounts we should use for any taxes due, and for estimated taxes.
Monsterflockster
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Re: Tax bill split between spouses

Post by Monsterflockster »

Goal33 wrote: Thu Apr 08, 2021 12:05 pm
Monsterflockster wrote: Thu Apr 08, 2021 9:43 am On another note... you know this is controversial and tbh splitting finances like this is crazy to me. So do you make your wife Venmo you half the bill when you swing gas up or go through the drive thru or you order separately? Best of luck to ya.
Somewhat related... we have friends that do this as well. Going out to eat with them is a nightmare. They bring up their income ratios and how they're going to split the check when we go out to dinner with them... It makes it more complicated for them because we are just throwing down a single credit card for our share :oops:
Do they ask for separate checks or do they break up what they ordered and come up with who owes what? It not only sounds like a nightmare for you as the friend but there seems to be some bitterness on their end as well.
Thesaints
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Re: Tax bill split between spouses

Post by Thesaints »

A restaurant for 2 is a $1,000 at most (at least for the two of us). Our tax bill is 200k, instead.
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Doom&Gloom
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Re: Tax bill split between spouses

Post by Doom&Gloom »

DW & I split our finances and struggle over this every year, but always arrive at something we both think is fair. However, our incomes are much closer to equal than yours. Our issues usually derive from different withholding amounts.

In your case, I would suggest that the lower earner receive about half of their withholding as a "refund" and the other foot the rest of the bill if any is owed. If a refund is due, then split it evenly. Write this (or whatever you both agree on) down and do it every year. Then go out and have a nice dinner as has been suggested above. This is not something that should become a problem in your situation. Do not give it a chance to become one.
Good Listener
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Re: Tax bill split between spouses

Post by Good Listener »

I suggest paying no heed to anybody who has never dealt with this and simply filed jointly from the beginning....i can tell you what I did with wife number two who I ultimately divorced. I ran a joint tax return and that is what we file. I then ran on TurboTax individual tax returns as single that we did not file. I then reconciled that and there was always some advantage. By definition of course after we accounted for withholding and things and took care of that all excess went to her. That I lament was the thrust of our marriage in general. That's one way. Otherwise I have no clue. My daughter is likely to soon be marrying somebody and they are both quite well off but she is probably quite better off. We're going to have a prenup drawn up and she's going to have me a company her and we will see what the lawyer says
BoggledUp
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Re: Tax bill split between spouses

Post by BoggledUp »

Work out the tax liability as if you both earned what the lower earner earns, filing jointly as usual. Pay half of that each. The difference between that and the actual tax liability is down to the rest of the higher earner's income so they pay that part.
tj
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Re: Tax bill split between spouses

Post by tj »

Hyperchicken wrote: Wed Apr 07, 2021 10:58 am I'm thinking the only clean way to split the tax bill is to file MFS.

Then every spouse figures their own tax liability, amount withheld, and the amount due.

If you want to file MFJ, there's not going to be a clean separation, but the closest that I can think of is this:

1) Estimate tax liability as if you were filing MFS. For example, with 400K + 100K income, that would be 107K + 15K.
2) Estimate MFJ tax liability. For 500K income, that is 115K.
3) Pro-rate MFJ tax liability using MFS tax liability: 115 * 107 / (107 + 15) = 101K, 115 * 15 / (107 + 15) = 14K.

Note the result isn't too different compared to just filing MFS.
If they live in a community property state, they have to split it all 50/50 anyway.
Hyperchicken
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Re: Tax bill split between spouses

Post by Hyperchicken »

tj wrote: Thu Apr 08, 2021 11:18 pm
Hyperchicken wrote: Wed Apr 07, 2021 10:58 am I'm thinking the only clean way to split the tax bill is to file MFS.

Then every spouse figures their own tax liability, amount withheld, and the amount due.

If you want to file MFJ, there's not going to be a clean separation, but the closest that I can think of is this:

1) Estimate tax liability as if you were filing MFS. For example, with 400K + 100K income, that would be 107K + 15K.
2) Estimate MFJ tax liability. For 500K income, that is 115K.
3) Pro-rate MFJ tax liability using MFS tax liability: 115 * 107 / (107 + 15) = 101K, 115 * 15 / (107 + 15) = 14K.

Note the result isn't too different compared to just filing MFS.
If they live in a community property state, they have to split it all 50/50 anyway.
They can do whatever they want.
tj
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Re: Tax bill split between spouses

Post by tj »

Hyperchicken wrote: Thu Apr 08, 2021 11:22 pm
tj wrote: Thu Apr 08, 2021 11:18 pm
Hyperchicken wrote: Wed Apr 07, 2021 10:58 am I'm thinking the only clean way to split the tax bill is to file MFS.

Then every spouse figures their own tax liability, amount withheld, and the amount due.

If you want to file MFJ, there's not going to be a clean separation, but the closest that I can think of is this:

1) Estimate tax liability as if you were filing MFS. For example, with 400K + 100K income, that would be 107K + 15K.
2) Estimate MFJ tax liability. For 500K income, that is 115K.
3) Pro-rate MFJ tax liability using MFS tax liability: 115 * 107 / (107 + 15) = 101K, 115 * 15 / (107 + 15) = 14K.

Note the result isn't too different compared to just filing MFS.
If they live in a community property state, they have to split it all 50/50 anyway.
They can do whatever they want.
If they file MFS returns, they need to declare half the income and half hte tax on each return, generally.

They can funnel money around on their own, but they can't just file a separate return however they see fit.
Hyperchicken
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Re: Tax bill split between spouses

Post by Hyperchicken »

tj wrote: Thu Apr 08, 2021 11:35 pm If they file MFS returns, they need to declare half the income and half hte tax on each return, generally.

They can funnel money around on their own, but they can't just file a separate return however they see fit.
I don't believe OP is filing or is considering filing MFS.
Marseille07
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Re: Tax bill split between spouses

Post by Marseille07 »

tj wrote: Thu Apr 08, 2021 11:18 pm
Hyperchicken wrote: Wed Apr 07, 2021 10:58 am I'm thinking the only clean way to split the tax bill is to file MFS.

Then every spouse figures their own tax liability, amount withheld, and the amount due.

If you want to file MFJ, there's not going to be a clean separation, but the closest that I can think of is this:

1) Estimate tax liability as if you were filing MFS. For example, with 400K + 100K income, that would be 107K + 15K.
2) Estimate MFJ tax liability. For 500K income, that is 115K.
3) Pro-rate MFJ tax liability using MFS tax liability: 115 * 107 / (107 + 15) = 101K, 115 * 15 / (107 + 15) = 14K.

Note the result isn't too different compared to just filing MFS.
If they live in a community property state, they have to split it all 50/50 anyway.
For marital assets, yes. Given they're splitting tax bills 4:1, I'm guessing they also have their premarital assets separate, which won't be split 50/50.
tj
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Re: Tax bill split between spouses

Post by tj »

Hyperchicken wrote: Thu Apr 08, 2021 11:39 pm
tj wrote: Thu Apr 08, 2021 11:35 pm If they file MFS returns, they need to declare half the income and half hte tax on each return, generally.

They can funnel money around on their own, but they can't just file a separate return however they see fit.
I don't believe OP is filing or is considering filing MFS.
The person I quoted suggested they file MFS.
Luckywon
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Re: Tax bill split between spouses

Post by Luckywon »

bsteiner wrote: Wed Apr 07, 2021 9:38 am See Treas. Reg. § 20.2053-6(f): https://www.law.cornell.edu/cfr/text/26/20.2053-6. You figure what each spouse's tax would have been if they filed separate returns, and then you prorate the tax on the joint return in the same proportion.

This came up more often before 1982, when the estate tax marital deduction was generally limited to 50% of the estate, and you more often had to calculate the deceased spouse's share of the income tax for the year of death. It sometimes comes up in second marriages where the deceased spouse's estate goes to persons other than the surviving spouse. It also occasionally comes up when one spouse wants to file an amended return to claim a refund.
The above answer from bsteiner seems by far the most logical and clear to me. IMO it's strange the thread goes on and on.
Gnirk
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Re: Tax bill split between spouses

Post by Gnirk »

My DH and I are in a similar situation. However, ar our request, our CPA computes how much of our MFJ taxes each of us owes, or gets as a refund, using the same method that Bsteiner suggested.
Last edited by Gnirk on Fri Apr 09, 2021 12:20 am, edited 1 time in total.
Wannaretireearly
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Re: Tax bill split between spouses

Post by Wannaretireearly »

Goal33 wrote: Thu Apr 08, 2021 12:05 pm
Monsterflockster wrote: Thu Apr 08, 2021 9:43 am On another note... you know this is controversial and tbh splitting finances like this is crazy to me. So do you make your wife Venmo you half the bill when you swing gas up or go through the drive thru or you order separately? Best of luck to ya.
Somewhat related... we have friends that do this as well. Going out to eat with them is a nightmare. They bring up their income ratios and how they're going to split the check when we go out to dinner with them... It makes it more complicated for them because we are just throwing down a single credit card for our share :oops:
+1 Gives me a headache thinking about this.
How would the OP deal with a large shared item? Say, a bathroom or kitchen reno? Then throw a kid or two in the mix!
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DreamsOfRetiring
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Re: Tax bill split between spouses

Post by DreamsOfRetiring »

thanks a lot for the suggestions... we settled already...

Her tax bill was 13K (+1K more that withheld)
Mine was the rest ~ 140K
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DreamsOfRetiring
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Re: Tax bill split between spouses

Post by DreamsOfRetiring »

Wannaretireearly wrote: Fri Apr 09, 2021 12:19 am
Goal33 wrote: Thu Apr 08, 2021 12:05 pm
Monsterflockster wrote: Thu Apr 08, 2021 9:43 am On another note... you know this is controversial and tbh splitting finances like this is crazy to me. So do you make your wife Venmo you half the bill when you swing gas up or go through the drive thru or you order separately? Best of luck to ya.
Somewhat related... we have friends that do this as well. Going out to eat with them is a nightmare. They bring up their income ratios and how they're going to split the check when we go out to dinner with them... It makes it more complicated for them because we are just throwing down a single credit card for our share :oops:
+1 Gives me a headache thinking about this.
How would the OP deal with a large shared item? Say, a bathroom or kitchen reno? Then throw a kid or two in the mix!

. the 4:1 is just for guidance... we dont worry about money , but plan for things and have a framework..
MishkaWorries
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Re: Tax bill split between spouses

Post by MishkaWorries »

DreamsOfRetiring wrote: Fri Apr 09, 2021 5:25 pm thanks a lot for the suggestions... we settled already...

Her tax bill was 13K (+1K more that withheld)
Mine was the rest ~ 140K
Interesting. What method did you use to calculate who owed what?
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vtjon02
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Re: Tax bill split between spouses

Post by vtjon02 »

dknightd wrote: Thu Apr 08, 2021 8:10 am Why worry. You are a couple.
Divorce is almost never discussed on this forum, yet it is financially devastating.
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DreamsOfRetiring
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Re: Tax bill split between spouses

Post by DreamsOfRetiring »

MishkaWorries wrote: Fri Apr 09, 2021 5:32 pm
DreamsOfRetiring wrote: Fri Apr 09, 2021 5:25 pm thanks a lot for the suggestions... we settled already...

Her tax bill was 13K (+1K more that withheld)
Mine was the rest ~ 140K
Interesting. What method did you use to calculate who owed what?
Roughly the seperate calculation as MFS. And then split the savings from MFJ in ratio of income..
MishkaWorries
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Re: Tax bill split between spouses

Post by MishkaWorries »

DreamsOfRetiring wrote: Fri Apr 09, 2021 6:29 pm
MishkaWorries wrote: Fri Apr 09, 2021 5:32 pm
DreamsOfRetiring wrote: Fri Apr 09, 2021 5:25 pm thanks a lot for the suggestions... we settled already...

Her tax bill was 13K (+1K more that withheld)
Mine was the rest ~ 140K
Interesting. What method did you use to calculate who owed what?
Roughly the seperate calculation as MFS. And then split the savings from MFJ in ratio of income..
I think that's a fair resolution. Good on you both for working out an equitable solution.
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dknightd
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Re: Tax bill split between spouses

Post by dknightd »

DreamsOfRetiring wrote: Fri Apr 09, 2021 6:29 pm
Roughly the seperate calculation as MFS. And then split the savings from MFJ in ratio of income..
good solution. Glad you got it sorted out.
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bltn
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Re: Tax bill split between spouses

Post by bltn »

Broken Man 1999 wrote: Wed Apr 07, 2021 12:39 pm My income has always been much higher, as DW dropped out of the workforce early in her career to be a SAHM for years. A joint decision we both wanted.

In retirement, my SS is double DW's. Her career was shorter also because she retired at age 55.

We maintain individual accounts, we had a joint account many years ago when we had a mortgage. No mortgage, no need for a joint account.

Today I pay the bulk of expenses, including taxes. It isn't a science, splitting things up. It truth, DW has more disposable income than I take for myself, and I am 100% OK with that. So long as there are groceries in the house, gas in the van, and the cell bill is paid, she is golden.

Broken Man 1999
Similar in many ways to our situation.
Might add one thing. We are both car people. We have a pretty nice car, and a very nice car. Guess who has the very nice car.
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