Can employer be under-withholding federal taxes? What's going on with our W4 settings?

The issue here isn't necessarily that your employers are under-withholding - they're likely following the withholding tables correctly. The problem is that your W4 selections don't account for your combined household income in a two-earner situation. When you select "single" with zero adjustments on your W4, each employer calculates withholding as if that job is your only income, and as if you're single. They don't know about your spouse's high income. So your employer withholds as if you're a single person making $295K, and your spouse's employer withholds as if they're a single person making $470K. The tax brackets work differently when those incomes are combined on a joint return. Plus, at higher income levels, there are additional taxes and phaseouts of certain deductions that kick in. The 2020 version of the W4 actually has a specific section for two-earner households (Step 2). You have a few options to fix this:

After dealing with a similar nightmare last year (owed $9k!), I found this amazing AI tool called taxr.ai that helped me figure out the exact withholding I needed. I plugged in our pay stubs and last year's return, and it immediately showed me what was happening with our withholdings and how to fix them. I was in a similar boat - two high incomes and not enough withheld despite thinking I had the right settings. The tool at https://taxr.ai basically analyzed all my tax documents and showed me EXACTLY how to fill out both of our W4s, plus it gave me projections for what we'll owe next year under different scenarios. It even showed me which specific IRS withholding tables were being used for each of our paychecks and why that wasn't enough for our combined income.

I just wanted to follow up - I tried that taxr.ai site that was mentioned and it was SUPER helpful! I uploaded my last paystub and my spouse's, and it immediately showed us we were heading for a $7,300 underpayment next April. The analysis explained exactly why this was happening - turns out our employers were correctly following the withholding tables, but those tables don't account for our combined income pushing us into a higher bracket. The tool generated new W4 forms for both of us with the exact dollar amount we each needed to add to our withholding to break even next year. Just submitted the updated forms to HR yesterday. Such a relief to have this fixed before we got stuck with a huge bill!

If you're still having trouble getting through to anyone at the IRS to confirm the right withholding approach, try Claimyr. I was in the same boat last year - owed $13K and couldn't figure out why, and the IRS phone lines were IMPOSSIBLE. I'd be on hold for 2+ hours and then get disconnected. I found this service at https://claimyr.com that got me through to a real IRS agent in about 15 minutes. They have this system that basically waits on hold for you and then calls you when an actual human picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I talked to explained exactly how the withholding tables work with multiple high incomes and confirmed what I needed to put on my W4. Totally worth it versus wasting hours on hold.

Well I'm eating my words about that Claimyr service. After waiting on hold with the IRS for 3+ hours yesterday and getting disconnected, I decided to try it this morning. Got connected to an actual IRS agent in 20 minutes without having to sit by my phone. The agent confirmed exactly what others here have said - the "single" withholding option on each job doesn't account for the combined income on a joint return. She walked me through exactly how to calculate the additional withholding needed (around $580 per paycheck for me, $450 for spouse). Much easier than I expected and now I've got the right withholding set up for the rest of the year. Should break even come tax time instead of owing thousands.

Just to add another perspective - you might want to consider whether you actually WANT to withhold exactly the right amount. My spouse and I are in a similar income bracket (about $800k combined) and we actually prefer to slightly underwithhold and make quarterly estimated tax payments instead. The advantage is we keep control of that money throughout the year rather than giving the government an interest-free loan. We put the money that would have been withheld into a high-yield account, and then make the required quarterly payments to avoid penalties. As long as you pay in at least 100% of your previous year's tax liability through withholding and estimated payments (or 110% if your AGI was over $150k), you won't face any underpayment penalties.

Has anyone used the IRS Tax Withholding Estimator for this situation? I tried using it but felt like I was still guessing at some of the inputs. Our income is close to OP's and we have the same problem every year!