Talking about that fungible money! 
Huh. Ever since we got married, we’ve owed additional money on taxes, and I was always baffled by this, thinking that if we set our W4 forms correctly we ought not owe anything extra. Is that because of the marriage penalty? If so, could someone give me a succinct rundown?
The simple answer is because in a progressive-type tax system (which we have) the higher the rate of income, the higher the rate of taxation. So a couple who are married and filing jointly are reporting their income together, which means that they’re reporting more than if they each were single, and thus paying the higher tax rate. That’s the short short of it.
Along with my flipping (and likely bumbling attempt at humor), I should have linked you to this site. This is the IRS Withholding Calculator. It is said to be so accurate that your tax burden will be within $25 of what it tells you to put on your W4. I believe it is what our accountant used, actually.
ETA
But be forewarned: It does not include (and in fact, specifically excludes) the middle class tax credit. We have put away $800 just in case.
Thanks for the information and the link–very helpful!
You’re very welcome, indeed.
Maybe I misinterpreted your statement, but it sounded to me like you felt if a taxpayer ended up owing money when they file their taxes, then basically the taxpayer had received an interest free loan during the year.
If true, that would be a concept that seems 180 degrees backward to me. IMHO, the taxes withheld from each pay period during the year amount to giving the Government an interest free loan. I would rather pay my taxes in lump sum when I file, therefore being able to benefit from making investments with those funds during the tax year.
Not to speak for LonghornDave, but the middle class tax cut (or as they call it, the “Making Work Pay Credit”), does the opposite of withholding. Rather than withholding more money, it withholds less. That’s why (I think) LonghornDave is calling it a loan to you.
And in a sense, that’s accurate (even though the money ultimately came from you and other taxpayers). The problem is that there are a lot of people unaware — especially because of the small amount of increase in their take-home pay — that they are in fact receiving a loan.
It will be a surprise to them when they discover that they must repay what they did not realize they were receiving.
You’ve stated my position correctly.
This is supposed to effect 33 million dual income couples. cite So, 66 million people is a bit over a 5th of the population, right? Yeah, no big deal.
As of the first quarter of 2009, according to the US Department of Labor, the entire civilian workforce did not quite average 154 million. 95% of those are targeted for the middle class tax cuts, according to inumerable administration speeches, press conferences, and town hall meetings. That’s about 146 million. 66 million is about 45% of that.
It also gets ridiculously inaccurate at higher rates, doesn’t account for unearned income - its really not a great. We withhold a LOT more than the withholding calculator tells us too, and last year was the first year I wasn’t writing a big check to the IRS - mostly because we didn’t have capital gains and had capital losses that we could apply against ordinary income.
There is a little room in the tax tables to compensate, but it isn’t close to “normalizing” the situation. For two people who both have fairly high paying jobs - living in sin is a way better tax situation than getting married.
Unfortunately, their system doesn’t seem to be this flexible. Example: I pay quarterly estimated taxes. I got married in December of 2003. When we filed our joint return for that year, the IRS wasn’t able to match my payments (made under my SSN) with the joint return (indexed by my hubby’s SSN). They sent us a demand notice for the amount. I was able to show that I had paid under my SSN, but they apparently aren’t able to easily ‘connect’ joint filers in their system.
That is certainly true. The middle class tax cut caps out at (and I’m going by memory here) about $90K for singles and $190K for married couples filing jointly. For the very rich (relatively speaking), there is far less relief, and in fact there are additional burdens on the horizon despite Bush’s tax cuts. Those cuts, incidentally, will expire, I think it is, next year. If you have investment income (or loss), then the complications increase dramatically, assuming you itemize.
Again, true. The tables are much better at normalizing a couple, one of whom makes considerably more than the other.
In general the IRS systems are…not great. They’ve gotten WAY better - at least now they can match up your 1099s with what you report on your 1040. But they have all the issues of very large systems designed by committee and developed by the government (who tends not to be able to attract top talent for things like systems architecture jobs) and for a government agency that its not political popular to spend money on. In short, their budget is too small, their scope too large, and their resources inadequate for their needs - no wonder its an implimentation that sucks.
Welcome back to “town”, Liberal. I’m sure you’ll be delighted to know that it’s taken you less than 24 hours to get Pitted.
I have often suspected that this is a legacy of the older social norm of the single bread winner family. It would make sense to set up tax rates such that the brackets for married couples were twice as big as those for singles.
Jonathan
Thank you, Bright. No matter about the Pit. One word: Tranxene.
No thanks. Risk of sexual side effects, y’see.