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When getting hired, you must complete Form W-4, indicating the number of allowances (dependents) you wish to claim and your filing status such as single, married or head of household. If you do not want any federal taxes deducted from your paycheck, you can check the "exemption" box; however, you must qualify for this status. To be exempt, you must have had no tax liabilities for the past year and you must anticipate not having any for the present year. If your parents or someone else can claim you as a dependent on their tax return, restrictions may apply. If you would like additional federal taxes withheld, indicate this on the W-4.
Your federal tax amount is based on the number of allowances you claim, your filing status and the IRS withholding tax tables. Note that the more allowances you claim, the less federal taxes will be deducted from your paycheck. If you do not claim the dependents on your tax return, you can
end up owing the Internal Revenue Service.
State tax amounts vary by state, and some charge no state income tax at all. To determine your state tax amount, check with your payroll department or contact your state's labor department. Note that a few states charge local taxes, which include school and county taxes.
The Federal Insurance Contributions Act (FICA) includes Social Security and Medicare taxes. Social security taxes may be coded on your pay stub as OASDI (Old-Age, Survivors, and Disability Insurance). The percentage deducted from your paycheck for Social Security is 6.2 percent up to the maximum amount for the year. For 2009-2011, the wage limit was $106,800. Once you have earned the maximum amount for the year, your Social Security tax deduction ceases until the next year. Your employer is required to pay a matching amount of 6.2 percent.
For Medicare, the deduction is 1.45 percent and there is no wage limit. Your employer must pay a matching amount of 1.45 percent.
Category: Personal Finance