Last minute, yes I get it haha. I just wanted to see if anyone has any thoughts on this.
Me and the wife owe $1600. Filing through FreeTaxUSA. Last year we owed $93, and our situation has not changed much since then. So obviously shocked when I continued through the system and the number never went down. Also got the flag for an underpayment penalty of course.
Avoiding specific income numbers for privacy, but here are the highlight points: We're W-2 employees with 1 job each and did not change our W-4s since last year. Married filing jointly, just like last year. Total income rose $8000 total between us. On my part, over $1000 of that was going to grad school funded by my employer that went over the $5250 threshold of tax free income set by the IRS. Employer deducted from my paycheck to account for the tax liability and everything was applied to wages and withholding in accordance with that tuition benefit. Standard deduction. 1 Dependent, just like last year.
Withholding went down by $1000 from 2024 to 2025 for some reason and that's one of the biggest issues that I don't understand. For both me and the wife, despite our W-4's not changing at all, our employers both reduced how much was withheld from our paychecks year over year despite small increases to wages to both. Even after my employer withheld my part of my paycheck to cover the tax liability regarding grad school, my withholdings were still significantly lower than last years. I don't necessarily think it's a mistake since my wife has a different employer and they both reduced the amount withheld. Shouldn't the W-4s be classifying employees to the correct withholding amounts come tax time to avoid this very issue?
Maybe that accounts for $1000 or so. So where did another $600 owed come from? Again, everything is standard filer, standard information. No gifts. A small interest gain from $100 for an 1099-INT. Student Loan Interest adjustment of $200. Maybe the issue entirely is the withholding?
We're going to have to dip into savings to pay all that plus penalty. Had no idea not enough was being withheld. I guess I'm more trying to figure out if we did something wrong and how to fix it so this doesn't happen again.
Big unexpected federal tax owed with underpayment penalty
byu/MoS29 intax
Posted by MoS29
3 Comments
The main issue is that you both picked married filing joint on your w4. That’s incorrect with a 2 income home. When did you marry, or when did the second person start earning over 10k a year?
What’s the dollar amount in box 1 and 2 of each w2 each year?
The withholding tables in Publication 15-T adjust for inflation so if your income stayed exactly the same it would decrease slightly. If either of you get supplemental wages (bonuses), that has a different withholding calculation as well, even though it’s reconciled to your actual tax bracket on your tax return.
You could be in some AGI-based phaseout range where a small change in income causes a big change in tax liability.
If your withholding was disproportionately toward the beginning of the year, or your income was disproportionately toward the end, rather than being even as is assumed, you may be able to file Form 2210 and reduce or eliminate the underpayment penalty.
My guess is that one or both of you have your W-4s set to MFJ without checking the box to indicate your spouse works. This probably didn’t cause a big issue in 2024 because you got married part way through the year and therefore changed your w-4s part way through the year.