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You mixed withholding and income tax. The op is having the same issue
W4 withholding will affect your withholding? I think you were trying to say your w-4 election will affect your withholding but in your first post you actually said income taxes will vary based on your income and w-4 withholdings. Your income taxes are your income taxes, your w-4 election or withholding won't change what your income taxes are
He asked how paycheck income taxes were calculated. I answered.
Paycheck.
Paycheck.
Paycheck.
Not annual income taxes where it's income vs credits, but what happens with payroll and why.
Yes everyone knows that claiming 9 Dependents for withholding when you really have one will not change what you owe Uncle Sam mid April, but it absolutely affects how your paycheck income tax is calculated (again I knew what he meant, and responded in kind).
He asked how paycheck income taxes were calculated. I answered.
Paycheck.
Paycheck.
Paycheck.
Not annual income taxes where it's income vs credits, but what happens with payroll and why.
Yes everyone knows that claiming 9 Dependents for withholding when you really have one will not change what you owe Uncle Sam mid April, but it absolutely affects how your paycheck income tax is calculated (again I knew what he meant, and responded in kind).
There is no such thing as paycheck income tax, you are talking about federal withholding. Christ if you know the difference in terminology use the correct terms instead of perpetuating ignorance
There is no such thing as paycheck income tax, you are talking about federal withholding. Christ if you know the difference in terminology use the correct terms instead of perpetuating ignorance
I hate the lack of an ability to rep too frequently, because this post seriously deserves it.
There is no such thing as an income tax on your paycheck. You owe taxes on 4/15 based on your income/deductions over the year. That's it.
Throughout the year, various sources withhold certain amounts in order to "help"/make sure you have enough to pay your tax bill on 4/15.
The "WITHHOLDING" is not a TAX! You can calculate Withholding per paycheck, but there is no tax per paycheck. At absolute best, it's tax per quarter which is an estimation of what you will owe on 4/15 broken up into 1/4 payments.
But there is no paycheck tax and you certainly don't pay taxes per pay check.
It's one of the most commonly held misconceptions of the "paycheck to paycheck" class. Knowledge is freedom, and knowing the truth about taxes helps significantly in that respect.
Boys and girls, the payroll and income taxes withheld from your paycheck (or other sources of income) are sent on the spot to the IRS which makes them available to the appropriate federal agencies for their immediate use. These most definitely ARE payments of taxes.
In the old days (pre-1943), lots of people arrived penniless at April 15, having spent all of everything they had been paid. They had no funds available from which to pay the taxes that they owed. This was a big mess for everyone involved, hence we went to a pay-as-you-go system under which we are all now required to pay taxes concurrent with the earning of income over the tax year. You can do that either via quarterly estimating or by filing a W-4 with an employer who will then make per-paycheck estimated tax payments on your behalf according to withholding tables set up by the IRS.
It is the taxpayer's responsibility to assure that these estimated tax payments are adequate and sufficient to the requirements of the law. Generally, they must sum either to the tax that you owed in the preceding year or to 90% of what you end up owing in the current year. There are significant fines and penalties for having had not enough tax withheld over the course of the year. If underpayments are deemed to have been intentional, criminal penalties may also apply.
By April 15 of each following year, you are required to calculate the final number for the taxes you actually owe on income earned in the prior year. That number is then compared to the amounts of tax withheld and paid by estimation during that year. If that total is more than what is owed, you may claim a refund. If what you owe is more instead, you will need to enclose check with your return. If what you owe is too much more than what was withheld or estimated, those fines and penalties will come into play.
What's withheld is federal withholding but it's not income tax nor does it impact your total liability, it's applied against your total liability but doesn't change it
So I finally received my $5,000 hiring incentive. My employer (the Navy) added that to my normal paycheck. Knowing how much I make each pay period, and subtracting that from the $5,000, my take home bonus is about $3,000. Thats a 40% tax!
I understand the simple tax method is 25% for "supplemental wages" like bonus,etc. But under this "aggregate method", I am taxed more because it is added to my normal wage.
Why would the employer do this? Are there any advantages to this? Will I receive more back in my tax return next year because of this?
So I finally received my $5,000 hiring incentive. My employer (the Navy) added that to my normal paycheck. Knowing how much I make each pay period, and subtracting that from the $5,000, my take home bonus is about $3,000. Thats a 40% tax!
I understand the simple tax method is 25% for "supplemental wages" like bonus,etc. But under this "aggregate method", I am taxed more because it is added to my normal wage.
Why would the employer do this? Are there any advantages to this? Will I receive more back in my tax return next year because of this?
So you're active duty?
They always withhold bonuses at a high amount to keep you out of trouble.
When you file taxes next year your tax obligation will be based on everything you made in 2015, and you'll get a refund for the excess withholding.
I hate to do this but I have to make a little mini-rant. This is nothing against the OP because I applaud him for asking the question so that he can be informed as to how income taxes work. I associate myself with a lot of well to do smart individuals. And over and over again it amazes me how much the average person doesn't know about taxes.
Most people think "overtime is taxed higher than regular income". So it's not worth working.
Most don't understand how tax exemptions work.
Most don't understand how little savings writing off mortgage interest saves you (in 90% of cases in CA property taxes as twice as much as your tax savings).
Most think they are always going into a higher tax bracket and how much taxes suck.
I work for a government agency where most everyone gets 5% raises every year. A person who makes $5k a month and takes 4k home a month does some simple math and says that he's in the 20% tax bracket (sure lets go with that) then they get a 5% raise to $5250. After paying 25% in federal tax 8% in CA state taxes 6.5 in mandatory pension contributions 1% in CASDI 1.5% in Union dues and 7.65% in FICA they take home 51.35% of that raise. let's call it an even 50% (good ole California)
So now they get their check of $4125 and they cry about how this raise put them into a higher tax bracket and how taxes are so unfair and they don't get why! And I hear this every year and it just makes me scream inside. Some guy at my 2nd job was telling me how he knows how to screw the govt by only working 35 hours because he makes more in 35 than 40 because 40 puts him into a higher tax bracket. I almost went outside to throw up after that one. I hear it everywhere.
My coworkers wife works at a big 4 accounting firm. She gets huge bonuses every year because she's one of the best auditors they have. She should become a partner at the firm soon. My coworker came to me and said he and his wife were talking about how her 20k bonus would affect their taxes because they were afraid it would put them into a higher tax bracket and they would end up making less. I explained to him that taxes were based on a ladder system and only income in that ladder was taxed at that rate. He told his wife and they both **** their pants because they had absolutely no clue. One has a masters in Poly science, the other a masters in finance. I never went to school. What do you know.
Can you imagine if Walmart and other retailers told their employees that any raises they got would put that income into their highest marginal tax bracket, and there was a possibility of going into the next tax bracket! They could scare some people out of wanting raises.
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