Both my wife and I file zero allowances for both Federal (W-4) and State (CA). For Federal we checkbox married and for State we checkbox single/married with two or more incomes. To the best of my knowledge, filing with zero allowances means that at the end of the year we should have a $0 balance with the IRS. In addition, any tax deductions we take (like our mortgage interest) should come back to us as a rebate who's value depends on our tax bracket.

What has happened in the last two years is that we ended up owing the IRS and State just a bit over $500 combined when we were expecting a sizable rebate due to our first-home mortgage with a balance just over $600K @ 5%. In fact, had we not been able to claim nearly $50K in tax deductions, we would have ended up owing the IRS $10K in additional taxes -- how can this be?

I am aware that all things being equal, it is better to end up owing a little than receiving a large rebate because that means you were allowed to make interest off the money you save rather than giving the IRS an interest-free loan; but I'm still curious where this disparity in taxes owed comes from.

  • Are your and your wife's employers both calculating withholding tax based on individual wages without accounting for the double income of two wage earners? Jul 1, 2015 at 4:17
  • Yes, I believe that to be the case. Do employers generally have a way for you to define that you are a two-income family? I do see there is a place where you can explicitly tell them to withhold more, perhaps this is the place I need to place with the numbers.
    – SiegeX
    Jul 1, 2015 at 15:36

2 Answers 2


Do you have other income that you are not considering? Interest and dividends would be an example, but there are all sorts of options.

Also with your witholding is it set up such that your employers have any idea of your tax bracket ultimately based on your combined incomes? Usually what they do is take out money assuming you will be in the tax bracket of any given paycheck spread out over the course of a year. For example, for federal I had an option to select (in an online form that fills out my W4 for me) "married: withold at higher single rate" and did to try and cover this fact. Eventually I may end up having to calculate my own witholding to fix a too-low problem like yours.

  • No other sources of income of any significance, just minor interest on a $30K savings account. On the online Federal W-4 page, there is a section where you can enter an additional amount for them to withhold, I have it set to $0 currently. Can you go into a bit more detail my employers assumption of tax bracket, I think this is on the right track of what's going on.
    – SiegeX
    Aug 31, 2010 at 21:43
  • @SiegeX - Try the IRS Witholding Calculator and see what it tells you for this year: irs.gov/individuals/page/0,,id=14806,00.html
    – justkt
    Aug 31, 2010 at 22:17

I think this question is best answered by simply spending 40-60 minutes looking over the tax documents from last year and tracing thru the calculations.

As much as we might like to do so, we can't treat taxes like a black box. Tax law is much more complicated than it should be, but its much easier to understand taxes after you've filed them than before or during... at least you have solid numbers to look at.

  • I paid a CPA to do my taxes last year and I asked him the same question. He went over my docs again and confirmed that everything was correct but that both my wife's and my employer are taking out too little taxes for our income; he really didn't have an explanation as to why. I was hoping to get that insight here.
    – SiegeX
    Aug 31, 2010 at 21:44
  • @SiegeX, maybe you should ask your employer why they're taking out the amount they are if your CPA thinks they should take out more? Sep 1, 2010 at 1:32

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