awkwardpenguin, Thank you! I do remember the $10k limit last year. So I don't know why it's showing 2019 wrong.
So the total of my itemized deductions, out of what I have listed, is only mortgage interest plus $10k? So the $10k limit includes state & local taxes, real estate taxes, and personal property taxes.
Yes, that’s exactly right. All the non-mortgage taxes fall under the SALT cap.
Okay, I have a question. We file jointly and are in the 22% tax bracket. When I look at our W-2s, we are each only getting around 10% taken out for federal taxes. As a result, we have a pretty big bill due, plus an underpayment fine. We have both claimed 0 on our W-4s. I know that there's a place on your W-4 to instruct that more be withheld. But my question is, why is this necessary? Why isn't the system smart enough to know that we need more taken out vs. us having to instruct that? Or are we doing something else wrong? It's just really frustrating that the system is *so* far off.
Post by awkwardpenguin on Feb 1, 2021 14:28:04 GMT -5
lust2hart, it's because you are filing jointly and have two incomes. Basically the withholding rules are written for one income households and you have to adjust if you are a dual earning household. The withholding tables treat each income as the "primary" household income, but really the second income is taxed at higher rates than the first. It doesn't really make any sense, but another option is to check the "withhold at higher single rate" check box. However, the most accurate way is to use the IRS withholding calculator and withhold the extra needed.
Do you have sources of income beyond your W-2 income? If it's just W-2 income, adjusting your withholdings should take care of it. If it's other sources of income (investment gains or dividends, for example) it might make the most sense to pay quarterly tax payments on that income.
awkwardpenguin, thanks for explaining that. I'm still confused, though, because if we were each single, we would each still be in the 22% bracket for filing as individuals, so why is so little tax being taken out?
...Although I guess if we were single, we would have marked "single" on our W-4 and maybe we'd have more taken out?
Anyway, thanks for bringing up the gains/dividends question. That is a non-factor at this point, so it seems like the only thing we need to do is have our employers take out more.
Post by awkwardpenguin on Feb 1, 2021 15:54:50 GMT -5
lust2hart, so the withholding tables basically treat everyone as if they are the only income for their filing unit. So say you make $50k and your husband makes $50k. The withholding tables know you are married, but they do not know if your spouse has income or how much that income is. So they roughly calculate "this person makes $50k, will take a $24k standard deduction (the married amount), and have $26k of taxable income based on the idea that you are the only income for your family. Which would put you in the bottom of the 12% tax bracket and you'd pay (roughly) $2700 in total taxes for MFJ with no dependents.
However, if your H also makes 50k and you take the standard deduction, your taxable income is actually $76k, not $26k, and you owe (roughly) $8700 in taxes. That's much more than just double the $2700 the IRS calculates you will owe using the withholding table. You have two incomes but only take one standard deduction, and so all of the second $50k income is taxed and taxed at a higher rate because it is added to the $26k that is taxed from the first income.
The difference becomes even larger if you make uneven amounts - say $75k and $25k. The person who makes $25k will have almost nothing withheld because they'd owe very little in tax if they were the only income for their filing unit. But they'd still owe the same amount in taxes as a couple as someone making $100k solo, or $50k each.
Anyway, the IRS knows this and says to use the withholding calculator. It's also true if you are single and have two jobs.