Setting up W4's after getting married

[red92s]

We are about 4 weeks into the whole marriage thing, and beginning the process of merging finances. We are looking at completing new W4's and having some trouble understanding the implications of the various options. Our returns are fairly simple at this point: no kids, no mortgage . . . just two W2's, some retirement and investment accounts, and some student loan interest. Previously we both just claimed "1" on our W4's and ended up pretty much even at the end of the year; maybe owing or due $100-200. We'd both like to try and keep it that way.

Using the IRS calculator online, it's now saying that even if we both claim "0" on our W4's (max witholding) we still need to withhold an ADDITIONAL $4,000 per year to come out close to even. Are we overlooking something blatantly obvious (for instance, not factoring in state tax when running the federal calculator), or is this not a many-thousand dollar penalty for getting married? We both earn decent money ($125k combined, split close to 50/50 between us), but I think we would both fall into the 25% bracket as individuals, and filing jointly, so I'm not sure where this large tax additional tax burden has originated?

[MonkeyMama]

That doesn't sound right. The tax code currently has no marriage penalty to speak of. I also rarely see instances where claiming zero is not enough.

Your Federal taxes should be about $19,000 per year. Plus investment income (should be taxed the same as before). Minus pre-tax contributions x 25% (401k?). USe that as a starting point, and compare to what is already being withheld.

If you both claim 1, it's kind of the equivalent to claiming 2 exemptions. So that might be too much. I don't see why zero and zero would not work, unless you left out important information.

There is a difference between claiming "zero single" and "Zero married." You can choose either. Single withholding tables will withhold more.

[red92s]

This is the output of the IRS Calculator. This is based on us both having "1", as we do on current W4's. Your guess of around $20k in federal tax liability was pretty close. But for some reason us both claiming "0" (starting now) wouldn't get us there. My wife does typically get an annual bonus (for 2011 it was $7k before taxes), which was not reflected when I said we earn $125k combined. The calculations below include that number.

It seems to me like the results below conflict. If we did nothing to our current withholding, it says we'd owe $2198 when filing (blue, below). It then goes on to say to avoid that, we'd need to decrease our allowances to 0 AND withhold ANOTHER $3177 (red, below). If we are on course for a $2198 liability, why would we need to withhold $900 more than that, PLUS whatever additional witholding comes from going to 0 allowances?

Based on your responses, your anticipated income tax for 2012 is $19,158. If you do not change your current withholding arrangement, you will have $16,240 withheld for 2012, leaving $2,918 due when you file your return. To meet your anticipated tax of $19,158, change your current withholding arrangement by claiming 0 allowances plus an additional amount of $3,177 for the balance of 2012. Here’s how:

You and your spouse should each enter 0 on line 5 of all of your Forms W-4.
Have $3,177 withheld over the balance of this year. You may split this amount between your jobs any way you choose, entering on Line 6 of each Form W-4 the additional amount to withhold per paycheck for that job. If you want to spread the additional withholding in proportion to what would otherwise be withheld, then enter the following amounts for the job shown:
Job 1 (which has a projected salary of $59,736): $92 per paycheck.
Job 2 (which has a projected salary of $64,900): $101 per paycheck.
Check the “Married” box on your Form W-4.

Assuming this recommendation is in effect for the rest of 2012, your withholding will approximately equal your anticipated tax, and any refund or balance due should be less than $25.

[MonkeyMama]

Yeah, I don't know. I am less interested in what the IRS says and more interested in just figuring out the numbers.

If the "$2918 due" figure is correct, as is, changing both withholdings to -0- should erase about $2000 of that. Which should be fine. I really wouldn't bother to withhold any additional. I would set aside a little extra money in case you do owe at the end of the year. I presume enough will be withheld from bonus to cover the rest, if you usually don't owe much.

Gotta love the IRS - clear as mud!

Literally though, your tax situation should not change one bit, THIS YEAR, due to marriage. The exemptions, standard deduction, and income brackets are exactly double the single numbers. So it should all be the same. {Next year is another story - all sorts of provisions are set to exire 12/31}.