How to Hack Your W-4 Form and Win at Tax Time

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Tax season is stressful, we won’t deny it. Even if you’re a HENRY™ [High Earner, Not Rich Yet] and seriously leveling up your financial game, it can still be a punch to the gut to hear that you owe thousands of dollars come tax season. 

 

Here’s the bad news: you probably made a mistake on your W-4. Especially if you’re married. 

 

When our clients are surprised they owe taxes come spring we can usually trace it back to one tiny mistake: incorrectly filling out their W-4. 

 

And we get it. The first day at a new job is nerve-wracking. 

 

Simple things that were routine at your old job like coffee and lunch now take extra energy to navigate. You want to give a good impression. You’re learning new computer systems and navigating your new company’s onboarding software. And in the midst of all of this you’re given a stack of forms to fill out with a bunch of technical jargon like “dependents”, “deductions” and “withholdings.” 

 

These forms may not seem that important in the grand scheme of your new career. But one of those forms might have a bigger impact than you think: the IRS tax withholding form, also known as the W-4. 

Essentially, when it comes to allowances, tell ‘em you’re single, even if you’re not.  

You may not remember filling it out, but it’s likely you listed your name, relationship status and Social Security number, and then signed it and never thought about it again. And that simple selection of 0, 1, or 2 may be having a huge impact on your taxes. 

 

Here’s the good news: you can revisit this form and make adjustments anytime. So let’s break down exactly what’s happening and why you may want to change that sh*t ASAP. 

 

What’s an allowance?

The purpose of the W-4 is to provide your employer with an estimate of how much money they should be withholding from your paycheck for taxes. You’re probably thinking, I want to do whatever ensures that the amount that hits my bank account is as much as possible.

 

Not so fast. If you don’t pay enough in taxes throughout the year, you’ll owe come April. And we see this happen time and again. 

 

There are as many ways to fill out your W4 as there are empowering slogans plastered to the walls of your OrangeTheory Studio. But our opinion (which is what you’re here for right?) is slightly different. 

 

Essentially, when it comes to allowances, tell ‘em you’re single, even if you’re not.  

 

Why should I say I’m single? What if I’m not?

Let’s break it down with two examples for two couples who both work for companies— aka neither of them is living that self-employed hustle life. Each person has a salary of about $70k.

 

Couple A (filing their W-4s as married):

Couple A each fills out their W-4 as married. Their employers have no information about their respective spouses’ incomes, so they tax each of them as if their entire “household income” is $70k/year. In 2020 this means they’ll each be taxed at 12% (for federal income tax). 

 

But when they go to file taxes in the spring of 2021, the couple actually has a household income of $140k. The federal income tax bracket for a household income of $140k is 22%. 

 

This means they may have underpaid on their 2020 taxes and will owe Uncle Sam some money. 

 

Couple B (filing their W-4s as single):

Couple B each fills out their W-4 as single, with a salary of about $70k/year. Their employers put them in the 22% federal income tax bracket. (Tax brackets are different for single vs married people – higher when you’re single) When they file their taxes in the spring, they’re in the clear! 

 

This is because they filed jointly with a total income of $140k, which puts them in the same 22% tax bracket as a single person making $70k. 

 

So we suggest you take your cues from Couple B and avoid underpaying taxes throughout the year. At the end of the day it is just easier to overpay now. Sure, you feel the pinch of more money being taken out of your paycheck, but you don’t have the huge punch of owing thousands come tax time in the spring. 

 

Side note: If your employer allows you to file as “married, but withhold at single rate” that solves for this too.

 

But I file jointly with my spouse! How can I select single?”

It may seem strange, but selecting single actually has no impact on how you file your taxes, joint or separate. If you elect to claim single and withhold at a higher amount, you can still file your taxes jointly. Allowances do not equal marital status. 

 

One final thing that we have to make clear: this is general advice only. It’s a starting point. Finance is never one-size fits all, especially not tax advice. Which is why we like to work with people one-on-one through our Stash Plan® service. As a Stash Wealth client, you’ll get customized support to ensure you get the most out of each paycheck, without a surprise tax bill come April.

 

If you’re not working with us yet, selecting “single” is a good rule of thumb to keep in mind the next time you have to fill out a W-4 – but definitely double check this with our tax pro if you have one. This advice isn’t just for your next new job where you’re making double your current salary and jumping tax brackets. You can revise this form anytime, so make sure to check in with HR if you think you’ve f***ed it up. Then fix that sh*t and have a much happier tax season next year.