Having two incomes will usually help your family’s financial situation. But it can make your tax situation more complex and require more tax planning and preparation.
If you have multiple incomes in your family, be aware of the following potential tax problems.
Incorrect Withholding
More income sources means it’s going to be harder to figure out your withholding allowances. One common mistake when determining allowances on your W-4 form is taking credits or deductions multiple times with different employers.
At minimum, make sure you are paying as much in tax this year through withholding or estimated taxes as you did for the entire year last year. This is one of the safe-harbors that allows you to avoid underpayment penalties.
However, it’s possible to avoid underpayment penalties and still face a big tax bill in April. You may want to pay a little extra if any of the following apply:
- Your deductions may be limited by provisions in the Tax Cuts and Jobs Act.
- Your family earned more income this year than in the previous year.
- You have lower business expense deductions, mortgage interest, or other deductions this year.
If you do accumulate some tax debt, the IRS can generally come after either spouse to collect.
Joint and Several Liability
“Joint and several liability” means that the IRS can come after the assets or wages of either or both spouses to collect taxes due from a joint tax return. This can cause the following issues:
- The IRS can garnish the wages of both spouses, but usually only garnishes the higher-earning spouse’s wages unless there has been flagrant conduct.
- You can be held responsible for your spouse’s errors or omissions on a joint return, even if you didn’t know about them. You may be able to request innocent spouse relief (if you are otherwise eligible) to avoid this liability.
Even after a divorce, the IRS can keep coming after either spouse to collect delinquent tax debt. You may be able to request separation of liability to split up the tax debt in these cases.
Taxpayers with two or more incomes should work with a professional tax preparer to make sure they do their taxes right. Stay current with your estimated tax payments and contact a tax resolution attorney if you run into tax debt problems.
The Gartzman Law Firm offers tax return preparation and tax settlement help. Use our contact form to request a consultation with an Atlanta tax resolution attorney.