Appropriate W-4 withholding for newly married couple? (US California)?

Question

Hello - I recently got married (mid '05), but didn't change my withholding until last year. We were originally worried that we'd get nailed with a hefty tax bill last year, as we were both withholding 2, single. Turns out we only owed $500 federal, and a small amount for state. So early in 2006, we both updated our W-4's to married jointly. My wife was between jobs, and was making a career move - we saw that our total income was going to drop, and thought withholding 1 for both of us would be fine. Our 2006 total income (before adjustments) was about $15K less than 2005 - so I thought we might even get a refund.
We were right, for our state taxes at least - refund of +$400.
For federal, however, we owe $3100.
My mind boggles at the insanity of this. Is this the dreaded "marriage tax" in effect? How in the hell could this happen? I filed through H&R Block's website - and I checked and rechecked my return before submitting - and so now I might even owe a penalty? What gives?!?

Answer 1

What gives is that the withholding rates for Married are based upon a SINGLE income for the family unit. If both of you work, especially if one of you makes substantially more than the other, you will wind up with exactly the situation that you are now in.

Prior to making the change you had it just about right. A $500 debt at tax time isn't enough to draw any penalties for underpayment and gives you the maximum use of your $$$ through the year.

To properly calculate your withholding exemptions, a dual-earner couple needs to sit down with a copy of the Form W-4 package (get a copy from the IRS website) and use the worksheets on page 2 to figure the correct exemption amounts and extra withholding amounts. The totals you come up with are the TOTAL number of exemptions that you can claim between you and the TOTAL additional withholdg amounts that need to be withheld.

If you had left your withholding exemptions alone and added a $10 "kicker" per week ($20 per pay period if paid bi-weekly) you probably would have worked out just about right at tax time this year even with your spouse's reduced income in 2006.

If you read Form W-4 completely, it's pretty clear that you need to use the worksheets on page 2 to arrive at the correct withholding amounts for your tax situation. We're nearly 1/3 of the way into tax year 2007 so you need to get on this quickly, and probably will need to designate additional withholding amounts to prevent another negative balance next year to make up for the under-withholding so far this year.

Answer 2

This happens often, especially if the couple is young and just starting out in their lives and careers. Assuming the distance is great and the time, like University or a new Job, is just as great, It's really asking to much, to expect the love to last. Married people get divorced all the time, and they live side by side, which of course, may be the reason for the divorce. lol Other couples split up, love sadly, for most of us, is not eternal, but often fleeting. Although while we are in love, we believe it to be so. We all need company and companionship, and other people close to us. In long distance, you can always stay in touch, these days, but you still need some special person in your life, unless you intend to stay at home, with a good book or TV etc. Not the best way to spend ones life.