Fill Out W4 When Married Business Owner With Second Income

This part is the last part of filling out your W-4. It’s for married taxpayers who have second income, where the second income pushes them over to another tax bracket. So, for example, your income alone might put you at the 12% tax bracket, but however, when you consider your spouse’s income or your income from your job or your profits, it puts you at a higher bracket. So, it’s just about making sure you’re withholding at the right rate and it’s going to help you compute the additional amount needed toward the end of the year, to make sure the end of the year, you don’t owe. So, remember claiming zero is just not enough. You have to actually make sure you go through the process to figure out what additional amounts need to be withheld.

So, if you have more than one job, you’re married and filing jointly, you have a spouse and both of you work, and then you have you and your business, if your total earnings is going to exceed $53,000 or $24,450 if married and filing jointly, then you have to fill out this portion. The last part of the W-4 which is the two earners/multiple jobs. So, like I said previously, it’s about making sure you’re withholding at the right tax brackets for this income. So, it does not include, it does not take into effect that just because you fill this out correctly, you don’t have to pay estimated taxes. Yes, you do have to pay estimated taxes on your profit, but just making sure you’re withholding on your right tax bracket.

Now, estimated taxes, we’ll talk about that in the next series of videos but for right now, we’ll just concentrate and focus on making sure that your W-4 is completed correctly, so at least on your W-2 wages, you don’t owe tax on that portion of it. So, this is the very large last page of your W-4 page four. You start by entering the numbers from the previous pages. So, remember in the previous videos, we came up with eight, after filling out the other two sections. Then next, we’ll find the number from table one below, with the lowest paying job. So let’s say you pay yourself $40,000 and then your profits were $60,000 and then your wife’s income was $50,000. In this case, the lowest pay will be $40,000.

So we go down and we look for $40,000 here, which will be right here in $35,000 – $40,000, so that’s four. We enter that four here. Then in number three, what we do, if line one is more than or equal to line two, so we look at line one, then look at line two, we see that line one is more than line two. In this case, if that’s the case, we subtract line two from one, so we do eight minus four, four. However, if it’s less, we just enter zero. And if it’s less, we don’t even need to go further, but we have more so we have to keep going.

Then, the next thing we do is enter the number from line two. So, we look at the number from line two, which is four, then we enter the number from line one. We look at the number from line one, which is eight, and then subtract line five from line four, so we get four. Then enter the amount from table two below that applies to highest paying job. So remember we had 40,50,60, so the 40,50,60… So we look at this, so that would be between zero and $24,000. I’m sorry, between $24,901 – $84,450 which will be $500. So we enter that amount in there. Though we multiply line seven by six, so that’ll be $2,000. And then divide line eight by the number of pay periods remaining in the year. So basically, this is the additional amount that needs to be withheld.

If let’s say, it’s almost, paychecks have been going so let’s say you have only 10 periods left in the year, so you have only 10 paychecks left. You divide it by the amount of paychecks you have left. So if you only have 10 paychecks left, you have to withhold additional $200 from each paycheck and then once you have this number, you go back to page one, and that would be line six and that’s additional withholdings. So for this taxpayer, based on his income, the right amount of withholding will be seven and then additional withholding of $200 per paycheck.

One last thing that I should note here is, previously, we made the assumption that line one was greater than line two, so what happens if line two was nine? If actually you followed the other steps and line two was nine. And so this becomes zero. In that case, you stop there. You don’t fill out the rest of the W-4 and you go to page one, and you answer zero for line five. And since you didn’t fill out the additional portion, this will also be zero.

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By |2019-03-12T17:18:25+00:00March 28th, 2019|Tax Planning|Comments Off on Fill Out W4 When Married Business Owner With Second Income

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