When employers figure out how much to deduct from your paycheck, they use two rates -- one for married employees and one for single employees. Since married taxpayers owe fewer taxes on the same income compared with single filers, the married withholding rate is lower. This can be better because you get to take home more of your pay. But if your spouse works too, the standard married withholding rate may be too low, leaving you with a large tax bill at the end of the year. You can avoid this by making adjustments to your withholding on Form W-4.
Married Withholding Advantages
The main advantage of married withholding is that your taxes are withheld according to what you are likely to owe at tax time. You can use or invest the extra take-home pay at the time you earn it. Many people actually prefer to pay too much withholding so they get a large refund at tax time, but this basically amounts to giving Uncle Sam an interest-free loan.
Married Withholding Disadvantages
The disadvantage of standard married withholding is that you may end up paying too little and end up with a big tax bill at the end of the year. This is most likely to happen if your spouse works or you have two jobs. Each of your employers will calculate withholding based on the assumption that you have no other income, and they will not withhold enough money to cover your tax bill.
Adjusting Withholding Levels
You can avoid the possibility of owing money by making adjustments to your Form W-4. If your spouse works, don't take an allowance for him. If your spouse takes an allowance for your dependents on his W-4, don't claim them on yours. If your spouse claims a withholding deduction based on tax credits you expect to get, don't claim the same deductions on your W-4. You also have the option of instructing your employers to withhold an extra amount out of each check.
Change in Marital Status
If you become legally separated or divorced, you should change your status on your W-4 within 10 days. This will allow your employer to adjust your withholding level to reflect your new filing status.
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