This ain’t gonna be pretty.

Girl Ninja recently got her first paycheck of the new school year. I’ve been foaming at the mouth, waiting for this day to arise for many reasons: 1) Getting two paychecks is way more fun than getting one…duh. 2) We didn’t really know how much her check would end up being. 3) I didn’t know how much federal tax would be taken out of her paycheck. For today’s blog post, we will only be focusing on point three.

Back in May, I ran a calculation on our estimated 2011 federal tax obligation. The result wasn’t pretty. I estimated we would end up having to write a $1,200 check to the IRS come tax season (this is in addition to what we would have had withheld throughout the year).

Well, now that Girl Ninja received her new paycheck, I was able to make a far better prediction as to what our ACTUAL tax obligation will be this coming year, and to be perfectly honestit made me want to vomit.

Here’s a screen grab of what we are faced with…

Makes me want to cry

So even though we have already paid more taxes this year, than we did all last year, we still are going to be $4,511 behind. What really makes me angry though is that I don’t know what else Girl Ninja and I could have done to avoided this. Even though we are married and file jointly, we both claim “Single” and “0” exemptions to pay in at a much higher tax rate than the W-4 recommends (it wants us each to claim “married/2”). As far as I’m concerned the W-4 is worthless.

What really boggles my mind is that even though GN claims Single/0 on her W-4, she only had $76 taken out for federal taxes, when her gross pay was $1,228. That’s only 6% of her gross pay going to the fed! Does anyone know why?

We have a few options to reconcile this uber-depressing situation. We could either…

  • Make additional federal tax payments of approximately $1,000/month for the remainder of the year.
  • Keep withholding at current rates, and in December dedicate 100% of my gross income to bring us current.
  • Change absolutely nothing and wait until April 14th to send in that $4,511 check.

Part of me wants to wait until the April 14th so I can earn a little interest on that money and stick it to “The Man” a little. But then another part of me wants to bring that sucker current ASAP ’cause I feel like it is a “debt” looming over my head….and in case you didn’t know; I punch debt in the face when I see it!

Have any of you used the IRS withholding estimator? Are you on track with your federal withholding? Why is Girl Ninja only getting 6% of her paycheck taken out? And lastly, which route would you take to satisfy our tax obligation?

It’s a good thing I checked

It’s been a long time coming, but after eight months of drama, frustration, and a heck of a lot of patience, Girl Ninja finally got to sign a teaching contract for the 2010-2011 school year. Is it pretty stupid that she didn’t get her contract until the second to last month of the school year? YES, but at the end of the day a contract is a contract, it doesn’t matter if it comes on the first day of school or the last. We recently received a lump sum back-payment from the school district which brought her YTD salary in line with regular teacher rates. The check was a huge blessing and a very important reminder, a reminder that although taxes are important, they suck… bad.

The $10,000 gross pay she received had $2,800 in taxes taken out of it. Now I’m not a tax guy, but I knew there was no way we were in the 28% tax bracket (according to my estimated taxes). Why the heck would the school district take so much out? I still don’t know the answer to that question, but I’m sure glad they did.

At first, I was convinced we’d be seeing about $1,000 of that $2,800 back in form of a tax refund. That would make sense seeing that our marginal tax rate is roughly 18%. After a lot of number crunching, I discovered Girl Ninja and I were unknowingly setting ourselves up for a a rough tax season next April.

I was on track to pay about $7,500 in federal taxes this year. Girl Ninja, prior to the lump sum payment, would have paid about $2,500, for a total joint payment of around $10,000. I then went to the IRS’s website and ran some numbers to see what our estimated tax obligation would be this year. The result was surprising…$14,431.

Holy Guacamole, we would have unknowingly owed about $4,000! But since Girl Ninja’s retroactive pay added $2,800 to our tax payments, we’d now only end up being $1,200 behind. In an attempt to owe (and be owed) nothing next tax season, I submitted a new W-4 to my employer so an extra $150/month was taken out of my paycheck.

Had Girl Ninja not received that lump sum payment, I never would have thought to check our 2011 estimated tax obligation, which means I would not have realized we were underpaying our taxes until it was too late! Have you ever been blindsided by your taxes? Ever owed way more than you thought (or got back way more than you expected)? Have you checked your 2011 estimated tax obligations to make sure your payments are on track?