If you work, a certain amount of your paycheck is withheld each pay period. It’s a good idea to understand what, and how much, is taken out of your paycheck so that you can make any necessary changes that could mean a larger paycheck or larger tax refund for you next year.
When should I check to make sure the correct amount of federal income tax is taken out of my paycheck?
1. When you prepare your tax return and if you:
- Received a big refund,
- Owe a large amount of money in taxes, or
- Owe money in taxes and you were charged a penalty
2. There were changes in your life or financial situation that affect your taxes, including:
- Lifestyle changes: marriage, divorce, birth or adoption of a child, purchase or sale of a home, retirement, filing for bankruptcy.
- Changes in wages: you or your spouse start or stop working or take a second job.
- Changes in taxable income: interest income, self-employment income, IRA, dividends, capital gains.
- Changes in adjustments to income: IRA deduction, student loan interest deduction, alimony expense.
- Change in itemized deductions or tax credits: medical expenses, taxes, interest expense, gifts to charity, job expenses, dependent care expenses, education credit, child tax credit, Earned Income Credit.
What is withheld from my paycheck?
1. Federal Income Tax:
- This federal tax is used to pay for the nation’s expenses such as the military, national parks, highways, schools and the national debt.
- The amount of money taken out of your paycheck can depend on how much you get paid and how you filled out your W-4 form at work.
- The amount withheld from your paycheck will be different from other taxpayers paychecks.
- Federal Insurance Contributions Act, or FICA, is taken out of all paychecks so that workers can get Social Security and Medicare benefits in their retirement years.
- Both employers and employees contribute 6.2% of our salaries to Social Security and 1.45% to Medicare.
- The percentages for self-employed workers are higher.
3. State Unemployment Insurance:
- Some states require that employees contribute to a fund to help pay for the costs of unemployment benefits.
- Not all states do, so take a look at your pay stub or talk to your Human Resources representative to see if this money is withheld from your paycheck.
How do I make changes to the amount of taxes taken out of my paycheck?
To change the amount of federal income tax that your employer takes out of your paycheck, you need to make changes to Form W-4, which you filled out at work. Ask someone at your Human Resources office at work.
*Remember, the deadline to file your federal and state taxes is Wednesday, April 15, 2015.