A strange thing happened this year: we had to pay taxes to the IRS and state when we would normally be expecting a tax refund. It is strange because nothing has changed in our employment or personal lives from last year, unless the tax code itself has changed. I even run the numbers several times (using different tax preparation software) and different ways (filing jointly versus separately) to make sure there wasn't a mistake, but no matter how I filed, we still owed. I expected my business to owe some taxes (and it did), but why did we owe on personal income?
We've had to review the exemptions we take on our W-4, and how we pay for our benefits, and I think it might be because we were both taking exemptions. I do not know why this wasn't a problem last year (our first time filing jointly) where we received a sizable refund. The best we could do is have my wife claim only one or two exemptions and allow higher tax withholding as if she were single. That will help next year.
But the best solution, however, will be for her to claim no exemptions and remain at the higher married/single withholding rate. I would claim only the head of household exemption and also do the higher married/single withholding rate. I've learned that this arrangement would ensure a nice tax refund every year.
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