W-4 and Your Working Spouse
It’s possible that this advice might be considered common knowledge, but I just learned it at age 32, so feel free to forward it to your friends who recently became part of a working couple.
The first time I saw a W-4 form at age 16, I had to take it home and ask my parents to help me with it, because the design of the thing was so oppressively boring that I could barely read it, not to mention that I had no idea what a “dependent” was. I remember my father walking over and saying, “just put zero.” Not that he was wrong, but, you know, teach a man to fish, and all that…Banking Deal: Earn 1.40% APY on an FDIC-insured money market account at CIT Bank.
In the last 16 years, the design of the W-4 hasn’t improved. It’s not unique among Government documents for lacking proper hierarchy. For example, see this article about how better information design might have helped President Bush pay more attention to the memo titled “Bin Laden Determined to Strike in US”.
Here’s a snapshot of the current W-4, with an arrow pointing at the part that looks important:
And, once you’re married, here’s where the important part starts:
Of course, blaming others is hardly ever a good way to retroactively avoid making mistakes. And my mistake was not closely re-reading the W-4 after I was married. Had I ever spoken with an accountant or financial adviser before I was married, I might have avoided this mistake, but taxes had always been so easy. All marriage was supposed to do was maybe provide a tax break or two.
In 2007 I answered the W-4 questions honestly, as I had done ever since I started working full-time (enter 1 for yourself, enter 1 if you are married, and I ended up with a “2”), and my wife entered a total of “1”, because she’s just more conservative than me. All year long we, as a working couple, were not having enough taxes withheld. Not that we were living like kings, and we just didn’t notice it… we weren’t awash in cash. It just felt like we were doing okay for ourselves.
As it turns out, we bought stuff, and went out to dinner, more often than we should have.
The summary version is this: if you are filing jointly, and both of you have an income, only one of you is supposed to answer the W-4 questions “honestly”. More specifically, there’s a formula you can use to determine the individual settings that both of you should be putting on your W-4. Other important factors, like a mortgage payment, will also come into play when determining these settings.
Theoretically, there is a withholding calculator operated by the IRS, but every time I go to look at it, it’s “undergoing maintenance.”
There are other options out there, but it’s hard to gauge the official-ness of calculators created by companies that don’t have as much information as the IRS does.
If you’re part of a working couple, your W-4 almost certainly needs some finessing. Comment below if you have additional advice or questions for me and the rest of the readers here.