How much federal income tax should be withheld on $20,700?
Her payroll records show married, claims no exemptions, paid once per month for 12 months, annual salary is $20,700. What should her withholding for federal tax be on her monthly check?
11:56 am PDT April 16, 2013
The answer here is that the employer is likely taking exactly what they should take, based on her W4 form that she filled out with them. Each individual job computes withholding based on the individual's income as matched to the federal withholding charts for the status & info they use on the W4 form for withholding. However, because it is individually based, meaning each employer only considers what they are paying that employee during the year when compared to withholding charts, then withholding is done as if that will be the only taxable income for that person for the year. The employer has no way of adding to their computations what might or might not be income for the year from another source.
Instead, the employee has the option of having additional withholding done on their regular pay to account for the income in their household for the year. Also, it isn't just your wife's withholding; it's withholding from both of your employers that will create a tax liability at the end of the year if the combined withholding does not account for the combined income on the joint return.
If you were doing your taxes manually, totaling both W2 forms for you and your wife, entering that information directly into the 1040 form, and then going to the deductions section on the 1040 form to make deductions before calculating tax liability, you would
not perceive one check or the other as "not withholding enough" if you owe money but that there wasn't enough combined between the two when compared to the tax tables.
In Turbo Tax, you perceive it as such because the program front-end calculates ALL of the standard deduction and personal exemption deductions for both you, your wife, and any dependents on the return when you enter the first item of income. The program does not have any additional deductions from income to include when the 2nd W2 form is entered and only calculates at that point the additional income and withholding as entered from the form. If said deductions were "split" ahead of time when you entered your W2, you would not be seeing such a large number in the refund monitor on only your income. However, the program cannot function in that manner because it must calculate all deductions from the beginning, just after the first income item is entered (the program does not "predict" that you might or might not be entering additional income into the program at that point & it would be way too complicated to do so).
In short, the refund monitor is only a tool, not a reflection of whose W2 does or does not have enough withholding. Yes, you should likely make adjustments to some W4 forms at work so that your withholding is enough to cover your entire household income and tax liability. Whose W4 form you choose to use for that, whether one or both, is up to how you want to handle the taxes.
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