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I've filled out the W4 five times now and keep getting a high number. At my old job, about $344 was withheld in my biweekly paychecks and my new job is withholding 4 times as much.

My new salary: 85k
Spouse's salary: 100k (filing jointly)
Dependents: 1
Allowances: 4 (line H)
Using the Two Earners Worksheet, I arrived at $5,460 to be divided over 7 remaining pay periods in 2019, so I put 0 in box 5 and $780 in box 6 on the first page.

Am I missing something obvious? I'm about ready to just say "withhold 30% more than my old job did" and call it a day. I've spent too much time on this.

  • "my new job is withholding 4 times as much." What W4 do they have on file? (Because you might have screwed that one up.) – RonJohn Sep 28 at 19:27
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    What was your old salary? and what allowances etc did you claim on your old W4? – Dilip Sarwate Sep 28 at 20:31
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    Given the salaries involved, unless you have significant itemized deductions, all of the additional income is going to be in the 24% bracket, while a lot of the previous income is taxed at 0%, 10%, or 12%. – jamesqf Sep 29 at 3:28
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    Due to the point jamesqf makes, your old withholding really is not indicative of what your new withholding should be. What is the increase in withholding, as a fraction of the increase in gross pay? If it's above 40%, there may be a mistake. If it is less, it is probably correct or even too little. (Depending on your state, we could expect the marginal tax rate at your income to be anywhere from 32% to 45%) The rule of thumb is to list all allowances on the W4 of the higher earner (your spouse) and list 0 for the lower earner, but the Two Earners calculation should come more accurate. – Ben Voigt Sep 29 at 4:48
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    From old salary of $65k to new salary of $85k is an increase of 31%, not 25%. That's the first of many mistakes and wrong assumptions in your math. – Ben Voigt Sep 29 at 5:06
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A quick calculation (your pay increase of $20k/yr times 40%, an estimate of your marginal tax rate inclusive of FICA) suggests your withholding should increase by $8000 per year, or a little over $300 every 2 weeks. Your thought of "increase withholding by 30% of the old withholding" would fall considerably short -- my rough estimate is that your withholding increases by 90% or so from the $344 you mentioned.

Either your old withholding was far too low, or else the "Two Earners Worksheet" makes an assumption that does not apply to your situation (for example, assuming you have been making the higher salary all year, but spreading the extra tax over only 7 pay periods instead of all 26).

My suggestion would be instead of filling out the $780 on the W4, to list zero extra withholding and set that much aside into a savings account every paycheck. That way you will be able to pay the tax due when you file your 2019 taxes (you will have tax due, but it will be less than the worksheet is calculating). As long as your withholdings are greater than 110% of last year's total tax, you won't owe any penalty. If you keep control over the money until filing time, you (a) can earn some interest on it over the next 7 months and (b) have the difference available to you immediately when you file, instead of waiting for the IRS to process a refund.

Next year you will fill out the W4 again, and this time the "Two Earners" calculation will be properly divided out over a whole year. (If you do it in January; don't wait until tax filing to update the W4)

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    Q states filing joint with prior year GI 165k (at least -- any investment or other income isn't mentioned) and thus probably AGI over 150k, so their safe harbor is 110% of prior year tax instead of 100%. – dave_thompson_085 Sep 29 at 7:12
  • The old $344 withholding does feel low, but I always got a refund. Maybe my wife's withholdings compensated? Anyway, if I omit the $780 from my W4, how many allowances should I claim? Following instructions, I arrive at 4 allowances, but my wife also changed jobs recently and says that she put 3. Should we put the same or different numbers? – ximapi Sep 29 at 14:42
  • @dave_thompson_085: Thanks for pointing that out, I had thought that the threshold was higher for MFJ (as OP appears to be) than for single filers, but it seems not. On the other hand they may well have been under the 150k threshold if pre-adjustment gross was 165k. – Ben Voigt Sep 29 at 19:56
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    @ximapi: Zero allowances. You and your wife shouldn't both claim the allowances, only the higher earner should. – Ben Voigt Sep 29 at 19:57

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