Tax question. Have a tax bill for 2010.

[andy158]

Last year we modified our income tax withholding because we had a $1,730 refund of which the trustee got $330 of. Changed our exemptions to married with one dependant. Recommended by an accountant we know. That is in fact our real status. We claimed single with no dependants for 2009. Now we owe a whopping $1,380 to federal! Got a state tax refund of $110 last year and owe $0 this year (that change worked out ok). We have enough in our emergency fund to pay half now and to file an extension to save up for the balance. We may even have enough time to save for the rest before April 15 if we really watch our p's and q's.

My question is will the trustee ding us for owing so much in taxes when we had a refund last year? Our income increased a little (around 10%), but I find it hard to justify a tax bill this high. I did work alot of overtime last year which accounts for the 10% increase. This time last year I had worked 5 extra turns of overtime. They cut our overtime starting this year and I haven't worked any yet this year. Going to change our withholdings back to what we had originally for our own peace of mind.

Should we let our attorney know the situation or just pay the taxes due and send the trustee a copy of the tax returns as ordered in our plan?

Don't really want to draw attention to ourselves. Everything has been working out with our payments and I don't want to rock the boat.

[chicagoed195]

The trustee will almost never care that you owe taxes. Just send him a copy of your return.

The problem with your withholding is most likely that you went from S-0 to M-1. The table rates of withholding for a single person result in a much higher withholding rate than for a married person. If you had changed from Single-0 to Single-1 you would have had approximately $900-$925 less withheld but going from single-0 to married -1 would have resulted in about $3,000 less in withholding. This example is based on someone who makes approximately $52,000 per year, although the numbers wouldn't be substantively different at a higher level of income.

Given that you owe $1,400 and assuming 2011 will be essentially the same as 2010 other than the overtime you should probably leave your exemptions the way they are and instruct your employer to withhold an additional amount each pay period. (Divide $1,400 by the remaining pay periods in the year to arrive at this number) This should put you at pretty much break even on the Federal return.