How Your Paycheck Works: Income Tax Withholding
When you start a new job or get a raise, youll agree to either an hourly wage or an annual salary. But calculating your weekly take-home pay isnt a simple matter of multiplying your hourly wage by the number of hours youll work each week, or dividing your annual salary by 52. Thats because your employer withholds taxes from each paycheck, lowering your overall pay. Because of the numerous taxes withheld and the differing rates, it can be tough to figure out how much youll take home. Thats where our paycheck calculator comes in.
Tax withholding is the money that comes out of your paycheck in order to pay taxes, with the biggest one being income taxes. The federal government collects your income tax payments gradually throughout the year by taking directly from each of your paychecks. It’s your employer’s responsibility to withhold this money based on the information you provide in your Form W-4. You have to fill out this form and submit it to your employer whenever you start a new job, but you may also need to re-submit it after a major life change, like a marriage.
If you do make any changes, your employer has to update your paychecks to reflect those changes. Most people working for a U.S. employer have federal income taxes withheld from their paychecks, but some people are exempt. To be exempt, you must meet both of the following criteria:
Having Difficulty Paying State Taxes This Year
Unable to pay your taxes in full this year? Help is available. At Brotman Law, we strive to achieve favorable outcomes for our clients. Your options may include a payment plan that lets you pay taxes due over a period of time. If youre facing penalties or would like to dispute an assessment on your tax returns, contact us today and well get it sorted for you. Tax time doesnt need to be stressful!
Why Do I Owe State Taxes But Not Federal
Many taxpayers ask, how come I owe state tax but not federal? There’s a fundamental difference between federal and state income taxes. The former are collected by the federal government through the IRS and these taxes are then used to fund the various functions that come under the federal government. State income taxes are collected by individual states where the taxpayer may be living or have a business nexus in.
The withholdings and deductions made for your IRS federal tax liabilities may be more than enough to cover them all. In that case, you would be eligible for a federal tax refund. Even with your federal taxes paid, you still might meet the threshold at which your state starts charging tax. So even if you dont owe federal taxes to the IRS, you may still owe the state at the end of the year.
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Nonresident Athlete Individual Income Tax
A nonresident individual who is a member of the following associations is considered a professional athlete and is required to electronically file a Louisiana income tax return, IT-540B reporting all income earned from Louisiana sources:
- Professional Golfers Association of America or the PGA Tour, Inc.
- National Football League
- East Coast Hockey League
- Pacific Coast League
Income from Louisiana sources include compensation for the services rendered as a professional athlete and all income from other Louisiana sources, such as endorsements, royalties, and promotional advertising. The calculation of income from compensation is based on a ratio obtained from the number of Louisiana Duty Days over the total number of Duty Days. Duty Days is defined as the number of days that the individual participated as an athlete from the official preseason training through the last game in which the individual competes or is scheduled to compete.
What Electric Vehicles Could Qualify For Tax Credit As Of January 1 2023
Alright, this is probably the main reason why youre here. If you scrolled through the details above, you may want to consider going back and at least skimming, because there are some major changes to federal tax credits to electric vehicles under the Inflation Reduction Act.
Following a revision by the IRS, the US department of Treasury has delayed its battery guidance pertaining to what EV manufactures need to build in the US for their vehicles to qualify. Although the department was given a deadline of December 2022 to deliver this guidance, it recently relayed that it needs more time, at least until March of 2023.
As a result, the qualifying factors mentioned above that pertain to battery component assembly and materials being sourced and built in North America are not being enforced at least for now. This is yet another speed bump as the US government looks to promote EV production on US soil and eliminate its dependency on other countries. All goof things in the long run, but the dust has still yet to settle on this massive EV tax reform that was signed last summer.
Under the terms mentioned above, these are the EVs that could qualify for the full $7,500 credit as of January 1, 2023.
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Specific State And Local Taxes
How do state and local individual income taxes work?
Forty-one states and the District of Columbia levy broad-based taxes on individual income. New Hampshire and Tennessee tax only individual income from dividends and interest. Seven states do not tax individual income of any kind. Local governments in 13 states levy some type of tax on income in addition to the state income tax.
HOW MUCH REVENUE DO STATE AND LOCAL GOVERNMENTS COLLECT FROM INDIVIDUAL INCOME TAXES?
State governments collected $352 billion from individual income taxes in 2017, or 27 percent of state own-source general revenue . Own-source revenue excludes intergovernmental transfers. Local governmentsmostly concentrated in Maryland, New York, Ohio, and Pennsylvaniacollected just $33 billion from individual income taxes, or 3 percent of their own-source general revenue.
Forty-one states and the District of Columbia levy a broad-based individual income tax. New Hampshire taxes only interest and dividends, and Tennessee taxes only bond interest and stock dividends. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have a state individual income tax.
In 2017, individual income taxes as a percentage of own-source local revenue ranged from less than 1 percent in Kansas and Oregon to 26 percent in Maryland. Local governments in Kentucky, Ohio, and Pennsylvania also collected more than 10 percent of own-source revenue from individual income taxes in 2017.
WHAT INCOME IS TAXED?
What Are The New Rules For Required Minimum Distributions Or Rmds In 2023
Currently, Americans must start receiving required minimum distributions from their 401 and IRA accounts starting at age 72 . The Secure 2.0 Act of 2022 raises the age for RMDs to 73, starting on Jan. 1, 2023, and then further to 75, starting on Jan. 1, 2033.
The new rules also reduce the penalty for failing to take RMDs. The previously steep 50% excise penalty will be reduced to 25%, and lowered further to 10% if the error is corrected “in a timely manner.” The penalty reductions take effect immediately, now that Biden has signed the law.
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Individual Income Tax Filing Due Dates
- Typically, most people must file their tax return by May 1.
- Fiscal year filers: Returns are due the 15th day of the 4th month after the close of your fiscal year.
If the due date falls on a Saturday, Sunday, or holiday, you have until the next business day to file with no penalty.
Filing Extensions
Cant file by the deadline? Virginia allows an automatic 6-month extension to file your return . No application is required. You still need to pay any taxes owed on time to avoid additional penalties and interest. Make an extension payment.
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How Do Tax Credits Affect Your Tax Bracket
Tax credits lower your tax bill dollar-for-dollar, but they dont affect your marginal tax bracket. However, they do lower your effective tax rate. You cant lower your tax bracket by claiming a credit. While you might have the goal of falling into a lower tax bracket, your primary goal should be to get your effective tax rate as low as possible. Deductions can help get you into a lower tax bracket and have a lower effective tax rate, but tax credits will help you lower your effective tax rate more given their ability to reduce your tax bill dollar-for-dollar.
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Most Tax Filers Get Refunds
If you received a tax refund last year, you aren’t alone. In fact, you’re in the majority. According to the IRS over 247 million tax refunds were issued in fiscal year 2021 and the average refund was $2,959.
- This windfall at tax time can be handy. However, it may provide even more value spread out throughout the year, rather than receiving it all at once.
- The average tax filer would have received roughly an additional $247 per month if they adjusted their withholding to neither get a refund nor owe taxes.
New Laws To Take Effect In North Carolina For 2023
As happens every new year, new laws are set to take effect in North Carolina on Jan. 1.
RALEIGH, N.C. — As happens every new year, new laws are set to take effect in North Carolina on Jan. 1.
Some receive little fanfare, others have major effects on life in the Tar Heel State,
In 2023, a new state law will limit the governor’s powers.
The new law makes changes to the Emergency Management Act as part of Senate Bill 105, the 2021 state budget. Read more from our newsgathering partners at the News & Observer.
The changes to emergencies are a response by Republican politicians and their allies to Democratic Gov. Roy Cooper’s authority to issue a coronavirus declaration in March 2020 and to extend it unilaterally on his own. Those orders served as the basis for governments to restrict retail business activity and public events, and to direct social distancing. Cooper ultimately ended the COVID-19 emergency declaration in August – 29 months later.
One law brings good financial news — the state individual income tax rate will be 4.75%, a drop from 4.99% in 2022. Even better, the individual income tax rate is set to drop to 3.99% by 2026.
Most income earners will see the latest lower rate reflected in how much tax is removed from their paychecks in 2023 and when they file their tax returns in early 2024. The budget law also directs and simplifies the business franchise tax in a way that should reduce the tax amount for North Carolina-based businesses.
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How Your Paycheck Works: Deductions
Federal income tax and FICA tax withholding are mandatory, so theres no way around them unless your earnings are very low. However, theyre not the only factors that count when calculating your paycheck. There are also deductions to consider.
For example, if you pay any amount toward your employer-sponsored health insurance coverage, that amount is deducted from your paycheck. When you enroll in your companys health plan, you can see the amount that is deducted from each paycheck. If you elect to contribute to a Health Savings Account or Flexible Spending Account to help with medical expenses, those contributions are deducted from your paychecks too.
Also deducted from your paychecks are any pre-tax retirement contributions you make. These are contributions that you make before any taxes are withheld from your paycheck. The most common pre-tax contributions are for retirement accounts such as a 401 or 403. So if you elect to save 10% of your income in your companys 401 plan, 10% of your pay will come out of each paycheck. If you increase your contributions, your paychecks will get smaller. However, making pre-tax contributions will also decrease the amount of your pay that is subject to income tax. The money also grows tax-free so that you only pay income tax when you withdraw it, at which point it has grown substantially.
Who Pays The Most
W2 wage earners those with a regular paycheck from a business, government entity or non-profit make up the largest share of tax revenue through income tax and social insurance withholdings, like the payroll tax that funds Social Security, the government retirement program.
Those withholdings can reduce here Americans take-home pay by nearly 40%, depending on income, and have made up about 73% of total revenue over the past two fiscal years through August.
Despite high unemployment because of the coronavirus pandemic, withheld income taxes in 2020 have fallen less than 1% from 2019 levels, partly due to higher earnings early in the year and aid to small businesses that kept paychecks coming to many idled employees over the spring and summer months.
Self-employed people, including many business owners, and those paying capital gains or other taxes not withheld from their paychecks, make up the second-largest category, funding around 19% of the total tax revenue during fiscal 2020 through August.
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Release Comes After Years
The returns were obtained by the Democratic-run Ways and Means Committee only a few weeks ago after a protracted legal battle that lasted nearly four years. The committee voted last week to release the tax returns, but their release was delayed to redact sensitive personal information like Social Security numbers.
The release of the tax returns follows a pursuit for the documents that had typically been made public voluntarily by past US presidents. Trump and his legal team continuously sought to keep his returns secret, arguing that Congress had never wielded its legislative powers to demand a presidents tax returns, which Trump said could have far-reaching implications.
The Democrats should have never done it, the Supreme Court should have never approved it, and its going to lead to horrible things for so many people, Trump said in a statement following the release.
The Trump tax returns once again show how proudly successful I have been and how I have been able to use depreciation and various other tax deductions as an incentive for creating thousands of jobs and magnificent structures and enterprises.
During the committees closed-door meeting last week, Republicans warned that the release of Trumps tax returns by Democrats could prompt retribution once Republicans control the House next year like going after the taxes of President Joe Bidens son, Hunter Biden.
Does Living In A State With No Income Tax Save Americans Money
State governments use taxpayer dollars to fund road maintenance, law enforcement agencies and other public services. The funding for those services typically comes from three key areas: property taxes, sales taxes and income taxes.
States without a personal income tax might ask residents and visitors to pay more sales tax on groceries, clothes and other goods, as is the case in Washington. A 6.5 percent state sales tax combined with city and or municipal sales tax rates result in a sales tax of up to 9.29 percent. The Tax Foundation puts the states total tax burden at 9.8 percent, making it the 24th most affordable state, the least of any state with no income tax and behind other areas that do charge the levy, including Indiana, South Carolina, Utah and Missouri.
Pump prices in Washington are also among the highest in the country, in part because of a high gasoline tax. As of 2021, Washington charges 49.4 cents per gallon in gas taxes and fees, the third-highest in the country behind Pennsylvania and California, according to The Energy Information Administration.
Florida relies on sales taxes and has the 24th most affordable combined state and average local sales tax rate in the nation, while its property taxes are above the national average, according to the Tax Foundation. Tennessee has the highest average combined sales and local tax rates in the country, at 9.55 percent.
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Annual Filing Option For Household Employers
Employers of household service employees may elect to file and pay the Virginia income tax withheld from their employees’ salaries on an annual basis, at the same time they submit the employees’ Forms W-2 for the year. In order to qualify for the annual filing, the employment must consist exclusively of domestic service in the private home of the employer as defined in the Federal Employment Tax Regulations. Employers may register for this filing option online, or by using Form R-1H. See Household Employer for more information.
How You Can Affect Your Louisiana Paycheck
If you want to shelter more of your earnings from taxes, you can always contribute to tax-advantaged accounts. You can put pre-tax dollars in a 401 and let that money grow tax-free until you start taking distributions in retirement. You can also put pre-tax dollars in a flexible spending account or health savings account account to use for medical expenses. Some workplaces offer other benefits you can pay for with pre-tax dollars, such as commuter cards that let you pay for parking or public transit.
If, on the other hand, your focus is on having more take-home pay in your paycheck, you can ask for a raise or seek supplemental wages. This includes overtime, but also bonus pay, award money and commissions. These supplemental wages are subject to Louisiana income taxes at the regular rate.
With average income tax rates and low property taxes, Louisiana may be on your list of potential places to call home. If youre looking to become a resident, take a glance at our Louisiana mortgage guide to understanding mortgages in the Pelican State.
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