Submitted by [deleted] t3_127k9cf in personalfinance
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Comments
megarooski3 t1_jeei375 wrote
Not sure if it even matters, but also may be important to know I'm a full time employee and not an independent contractor.
megarooski3 t1_jeehkif wrote
It is 100% likely I'm messing up terminology.
Yes, I don't claim allowances. I do see on each paycheck that federal taxes ARE taken out of my commission, but I have never inputted to withhold more from them (if that makes sense). I have never designated a % to further withhold.
gooberfaced t1_jeelsel wrote
> It is 100% likely I'm messing up terminology.
Yes, you even confuse "return" and "refund"- the most basic of terms.
>I'm not withholding anything
That's your problem.
Go to https://www.irs.gov/individuals/tax-withholding-estimator and see how that plays out.
itsdan159 t1_jeenm1j wrote
>Yes, you even confuse "return" and "refund"- the most basic of terms.
And also among the most commonly misused so it's not like OP isn't in very large company.
penguinise t1_jeeq1iq wrote
You should check the withholding rate on your commissions. Chances are that it is exactly 22%.
If your other wages are at least $109,225 (2023, Married filing separately) then this rate is too low. You need to add additional withholding to the regular checks to make up for the shortfall. The IRS calculator may be able to help.
Based on the size of your shortfall, you also need to make sure that your filing status on W-4 is Single or Married filing separately, or if it is joint that you take an adjustment for the other job in the household.
BoxingRaptor t1_jeeg5tq wrote
> My husband and I both file - currently are set up to be filing separately due to the amount of income we make together.
Are either of you on some type of income based repayment plan for student loans? If not, then you should probably be filing MFJ.
megarooski3 t1_jeegv0g wrote
No, my husband paid off his student loans before we got married, and I was lucky enough to have a scholarship and no student loans.
BoxingRaptor t1_jeehrvx wrote
Then you MAY benefit from filing jointly. You could try running the software filing MFJ. You'll probably still come out owing, but it might be SLIGHTLY better. Here, give this a read:
iheartcockss t1_jeexxyv wrote
There is no “may” about it, they 100% will come out ahead filing jointly. It’s mathematically impossible for them not too. The only reason to file separate is a pending divorce or student loan repayment reason.
cyberbytli t1_jeefx2c wrote
Not a tax expert but if your commissions weren’t taxed, that might explain it.
megarooski3 t1_jeeghoh wrote
Thanks, my commissions are definitely taxed. Of each gross commission check, I take home about 60% of the total amount.
staile t1_jeefuqq wrote
We’ll need to know your total income and how much is being withheld from your paychecks to help on this.
megarooski3 t1_jeeh2z5 wrote
My total base salary is $152k, and my total commission (what I make if I hit 100% if my plan) is an additional $101k. I am paid bi-monthly, 1st pay check is salary only, 2nd paycheck is salary+commission for the pay period.
I am claiming nothing on my W4s, so withholding nothing.
themudcrabking t1_jeei025 wrote
If you’re having nothing withheld that’s why. A simple version would be as follows:
Tax owed at filing=(total tax owed)-(tax withheld during the year)
megarooski3 t1_jeei8ht wrote
Thank you! I guess I'm confusing myself...I thought because I'm not claiming any dependents/allowances etc., I was being taxed at the max withholding level for my tax bracket. I guess that's not the case?
themudcrabking t1_jeejcin wrote
Claiming no deductions on your W4 and having nothing withheld are 2 separate things.
The more deductions claimed the less you’ll have withheld.
My previous comment is assuming you are not having anything withheld. You should review your W4 and W2 in order to understand which statement is correct (0 deductions or 0 withholding).
megarooski3 t1_jeek020 wrote
Thank you!
We were able to get a meeting with a CPA yesterday for today, so hoping someone can make sense of this. I know each person's situation is different, but i can say friends/colleagues of mine that are also making around the close to the same range as me and not claiming allowances/or further withholdings are not having this issue But thank you so much for all your help, these have been really helpful comments.
Its-a-write-off t1_jeej83e wrote
That is not the case, no.
DeluxeXL t1_jeen1d9 wrote
The fact that your paychecks are still not $0 means you haven't reached maximum withholding. Maximum withholding is 100% of your paycheck.
Also, you haven't mentioned
- the amounts of your FIT withholding and your spouse's FIT withholding.
- the amounts of your pretax deductions and your spouse's pretax deductions. (Pretax deductions are things like health insurance, FSA/HSA, and pretax 401k)
(Supply the amounts for 2022 if your question is focused on 2022)
I__Know__Stuff t1_jeejeaq wrote
You are in the 35% federal tax bracket, but the federal withholding on your commissions is probably 22%. That means you have about $10,000 too little federal withholding just from that. You need to either make estimated tax payments or increase the withholding on your other income to compensate for the underwithholding on your commissions. (You could ask your payroll department if there's a way to increase withholding on your commissions, but usually there isn't.)
Liquidretro t1_jeej1kq wrote
Have you used the IRS W2 calculator recently to see if your withholding is correct? https://www.irs.gov/individuals/tax-withholding-estimator
sciguyCO t1_jeeke8g wrote
Owing when you complete your tax return means that the amount withheld from your checks during 2022 was not enough to cover your final 2022 tax bill calculated on your tax return.
My guess: your commission checks used a default "supplemental income" withholding, which is 22% unless payroll uses a more complicated method (not many go that route). On $250k of base + commission, that puts you just inside the 35% bracket, with a lot of your income in the 32%. So if your commissions were handled as supplemental income, you'd have at least 10% "missing" withholding from those, which results in a big amount owed on your return. Owing another $12k on $100k of income somewhat lines up with that theory.
>On my W4 I do not claim ANYTHING. No dependents, no other witholdings, 0s across the board.
What filing status? Since you do your returns as filing separately, do you have your W-4s set for that, or is it using "Married filing jointly"? If your W-4 has "Married filing jointly" that won't withhold enough for separate returns. And with multiple jobs, it wouldn't withhold enough when filing your return jointly either.
>I am claiming nothing on my W4s, so withholding nothing.
Not's not really how it works. Withholding is the money kept out of your income and sent to the IRS to pre-pay towards your yearly tax bill. With the current version of the W-4, having nothing other than your filing status means that payroll will calculate your estimated annual tax from your income (known to them) minus the appropriate standard deduction, then run that "taxable income" estimate through the tax bracket calculations. That amount gets divided by the number of pay periods in the year to get your per-check withholding. Even with nothing on your W-4, your paystub should show some amount for "Federal income tax withheld" (or similar wording).
>My husband and I both file - currently are set up to be filing separately due to the amount of income we make together.
In general, a married couple's total tax owed will be lower filing jointly vs. filing separately. There are sometimes reasons to file separately anyway, like if one has an income-based loan repayment.
musing_codger t1_jeeklxm wrote
Why are you filing separately? That only makes sense in fairly uncommon situations. I suspect that is a big part of your problem.
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sir_richard_head t1_jeeg9ih wrote
What does Turbo Tax say your taxable income is? What does it say the amount you owe is?
What does your W2 have listed for your federal tax withheld?
PBRForty t1_jeeig3s wrote
If you’re bringing home a quarter of a million annually, it’s probably time to speak with an accountant about tax strategies and not rely on TurboTax. We’re way behind you and have benefited a lot by involving a professional.
megarooski3 t1_jeeiml4 wrote
Thank you! Yes, I'm meeting with a CPA this morning. When I was promoted about a year and a half ago I started making this range, I was not previously. Between getting married, buying a home, and job changes, I just haven't gotten around to it, but now I'm payin' tha piper so to speak.
CookieAdventure t1_jeekgtr wrote
Married, filing separately is the worst filing status ever. You’re literally losing money.
When you got married, you and your spouse needed to file new W4’s to take into account the combined, family income. Look at the W4 form and follow the instructions.
megarooski3 t1_jeekqkg wrote
Thank you-- the person who did our taxes last year (my husband's family friend who previously worked for H&R block), suggested we file married separately because I earn substantially more than he does.
finance_maven t1_jef6wfz wrote
Married people who have disparate incomes benefit the most by filing jointly. They were completely wrong telling you that.
CookieAdventure t1_jeenidf wrote
H&R Block and TurboTax have bad reputations.
Go to TaxSlayer and try your own taxes both ways (married, filing joint or married, filing separately). You’ll see the difference for yourself.
What they should have advised you was to fill out new W4’s. That’s the easiest solution, especially for two income families.
[deleted] OP t1_jeemctg wrote
[deleted]
Rave-Unicorn-Votive t1_jeeh4iy wrote
>no deductions
>I'm not withholding anything
You seem to be confused on terminology. If you're not withholding anything, ie you have $0 deductions for taxes on your paychecks, then of course you'll owe at the end of the year.
If you are confusing 'withholdings' with the outdated and no longer in existence 'allowances' and think that "claiming 0" means maximum withholding…it does not. Maximum withholding would be 100% of your paycheck.
Assuming you are neither withholding $0 nor 100%, if your tax bracket is ≥24% and your commissions are withheld at the supplemental rate of 22%, you will always be under withheld on the year unless you adjust your W4 to compensate by over withholding your regular paychecks.