Payslip Federal Income Tax withholding doesn't make sense

Question

I am married filing jointly.

My wife has several part time jobs. We're trying to figure out how we should pay our taxes due to the withholding not taking my salary into consideration.

I went through her recent payslips and the withholdings don't make sense to me. For example, in one of the payslips:

Gross payment: 533.33
Social security: 33.07
Fed Income Tax: 27.08

27.08/533.33 = 5.077%, which doesn't sound right for any kind of filing (married filing jointly, single, head of household, etc. - look below). Shouldn't it be 10% or more?

Social security looks right (6.2%).

Where does that 5.077% come from?

Answer 1

Get yourself a copy of Publication 15. For a married person, with weekly pay of $530-$540 and 1 allowance, it shows a $29 federal withholding. Close to what your numbers are.

The issue is that the withholding from this job doesn't know about anything else. So it assumes $10K or so for standard deduction and exemption, and then does the math at the lowest tax rate first. As an example, a couple earning $50,000 will have a tax bill of $3500 or so. 7% even though they are in the 15% bracket.

Answer 2

Ditto JoeTaxpayer.

I'd add that on your W-4, look at line "B". There's a place to indicate whether you have more than one job or a working spouse, and they'll adjust your withholding. This is a very simple adjustment: they don't ask how much the other job pays, just "is there another job in the family".

The easy thing to do is wait until you get your W-2's at the end of the year, calculate your taxes, and see how that compares to your tax liability. If you owe money, you can tell your employer to increase the tax withholding next year -- see line 6 on the W-4.

In general, there's no penalty for underpaying your tax as long as: (a) the underpayment is less than $1000; OR (b) you paid at least 90% of the taxes owed this year; OR (c) you paid at least 100% of the taxes you owed last year. So the easy thing to do is, if your tax liability for 2015 comes to, whatever, say $3000, then make sure that your withholding for 2016 totals at least $3000. Then you won't have to pay any penalty.

Of course you'll still have to come up with the cash to pay a shortage, which may be a strain. You could always get the tax forms for last year, fill them out using estimate of what your income will be this year, and see what the total tax comes to. Tax laws change every year and your estimates may be off, but it should at least give you a ballpark.

Answer 3

I think the piece you're missing is that the withholding calculation factors in your standard deduction and personal exemption(s), which are subtracted from your gross income to get taxable income. The 10% and 15% tax brackets apply to taxable income, which is always lower.

For example: Suppose your wife will make $40,500 this year and assume that's the total income for both of you.

Your standard deduction (married, filing jointly) is $12,600. Your personal exemptions are $4,050 each, $8,100 combined. Subtracting the deduction and exemptions from gross income yields a taxable income of $19,800.

The first $18,550 is in the 10% bracket, and the remaining $1,250.00 is taxed at 15%. So your expected tax is:

($18,550 * 10%) + ($1,250.00 * 15%) = $2,042.50

So you're paying $2,042.50 on gross income of $40,500, which is about 5%.

Of course I just picked $40,500 to make the numbers work. There are many possible combinations of income, deductions, exemptions, and other circumstances that you can set on your W-4 that would result in the same number.