How Can I Tell If Ive Been Affected
Theres an easy way to see if youre participating in the program: Your paycheck.
Look for the field on your pay stub called FICA SS Tax or OASDI .
The program went into effect September 1, so check a recent pay stub. If your paycheck is 6.2% bigger than normal, and theres no tax listed in the FICA SS or OASDI field, its safe to say you are participating in the deferral program.
If youre not still sure if your employer is participating in the program, get in touch with your companys human resources or payroll team. Only employees making less than $104,000 per year, or less than $4,000 in a bi-weekly pay period, are eligible to receive the tax benefit, as the IRS notes.
Fill Out A Sample Tax Return
Another option is to complete a sample tax return for the year, either by using tax software or by downloading the forms you need from the IRS website and filling them out by hand.
This method should give you the most accurate picture of your annual tax liability.
If you’re using last years tax software or IRS forms, make sure there haven’t been significant changes to the rules or the tax rates that would affect your situation.
How To Get The Most Money Back On Your Tax Return
Which Turbotax Is Best For You
Figuring out all these specifics can be stressful. But doing your income taxes doesnt need to be, when you use TurboTax Online.
However, if you do feel a bit overwhelmed, consider TurboTax Live Assist & Review and get unlimited help and advice from a real person as you do your taxes. Plus, theres a final review before you file. Or, choose TurboTax Live Full Service and have one of our tax experts do you return from start to finish.
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If You’ve Been Overpaying
Unless you’re looking forward to a big refund, try increasing the number of withholding allowances you claim on the W-4.
Note that the IRS requires that you have a reasonable basis for the withholding allowances you claim. It doesn’t want you fiddling with its form just to avoid paying taxes until the last minute.
If you don’t have enough tax withheld, you could be subject to underpayment penalties.
Bear in mind that you need to have enough tax withheld throughout the year to avoid underpayment penalties and interest. You can do that by making sure your withholding equals at least 90% of your current year’s tax liability or 100% of your previous year’s tax liability, whichever is smaller.
You’ll also avoid penalties if you owe less than $1,000 on your tax return.
When To Make Adjustments
The IRS suggests that, as an employee, you should check your withholding when your life circumstances change.
On a yearly basis, you should check on your income tax withholding to make sure that you are on track to pay the proper amount of income taxes and when they want to pay it that is, either throughout the year or during the end of the income tax filing season.
If you have a more complex tax situation you may need to double check your withholding. The IRS suggests the following group of people may fall under this category:
- Two-income families.
- People working two or more jobs or who only work for part of the year.
- People with children who claim credits such as the Child Tax Credit.
- People with older dependents, including children age 17 or older.
- People who itemized deductions in 2019.
- People with high incomes and more complex tax returns.
- People with large tax refunds or large tax bills for 2019.
As a general rule:
You should not have to adjust it very often.
But there are some circumstances when you may want to adjust your tax withholding:
Overall, adjusting your tax withholding can be a cash management tool that can help you plan better for your financial goals.
You simply have to know what your preferences are in terms of getting more money per paycheck or having a larger refund when you file your income taxes.
Either way, consult with a professional who can give you proper guidance on how you should adjust your tax withholding for your particular financial needs.
Read Also: How Do Tax Liens Work
What Is A Paycheck
A paycheck is how businesses compensate employees for their work. The most common delivery schedules are bi-weekly and semi-monthly, though this varies based on employer preferences and applicable state laws and regulations. Business-specific requirements, such as collective bargaining agreements covering union employees, may also dictate paycheck frequency.
Why Do I Have To Pay Fica Tax
Employers have to withhold taxes from employee paychecks because taxes are a pay-as-you-go arrangement in the United States. When you earn money, the IRS wants its cut as soon as possible.
Some people are exempt workers, which means they elect not to have federal income tax withheld from their paychecks. Social Security and Medicare taxes will still come out of their checks, though.
Typically, you become exempt from withholding only if two things are true:
You got a refund of all your federal income tax withheld last year because you had no tax liability.
You expect the same thing to happen this year.
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Virginia Median Household Income
Like most states, Virginia also collects a state income tax. Taxpayers fall into one of four income brackets, depending on income level. The top tax rate of 5.75% applies to taxable income over $17,000, so most taxpayers will be paying that rate on at least some of their income. Virginia’s income tax brackets apply to all residents regardless of filing status.
If you are looking to buy a home in Virginia or if you want to refinance a mortgage on a home you already own, make sure to check out our Virginia mortgage guide for important information on rates and details about getting a mortgage in the Old Dominion.
Reporting And Depositing Payroll Taxes
Employers can either directly report and deposit payroll taxes with federal, state, and local governments, or they can contract with a payroll company to handle this task.
Generally, filings are handled electronically. The employer designates how much of each tax is to be withheld each pay period by each employee, and those funds are withheld from paychecks and electronically deposited on a periodic basis with the relevant federal, state, and local agencies.
Six: Calculate Social Security And Medicare Deductions
Be sure you are using the correct amount of gross pay for this calculation. This article on Social Security wages explains what wages to take out for this calculation.
The calculation for FICA withholding is simple.
|FICA Taxes – Who Pays What?|
|FICA Taxes||Employee Pays|
|0.9% on gross pay over $200,000||0%|
Withhold half of the total from the employee’s paycheck.
For the employee above, with $1,500 in weekly pay, the calculation is $1,500 x 7.65% for a total of $114.75.
Be careful not to deduct too much Social Security tax from high-income employees, since Social Security is capped each year, with the maximum amount being set by the Social Security Administration.
You will also need to consider the additional Medicare tax deduction due by higher-income employees, which begins when the employee reaches a $200,000 in earnings for the year. The additional tax is 0.9% of the gross pay based on the employee’s W-4 status. No additional tax is due from the employer.
Most states impose income taxes on employee salaries and wages. You will have to do some research to determine the amounts of these deductions and how to send them to the appropriate state/local taxing authority.
Your responsibilities as an employer for deducting, paying, and reporting these taxes are discussed in this article.
What Are They Used For
Some taxes are used to fund a broad array of programs. Federal, state, and local taxes fund government programs such as road construction, emergency disaster relief, enforcement of safety, and environmental regulations and health care. Other taxes are specifically designated to fund certain programs.
This applies to the Social Security and Medicare taxes, which fund Social Security benefits and Medicare health care programs for the elderly.
Also Check: Do I Have To Pay Taxes On Social Security Income
What Are Federal Taxes
Federal taxes are the taxes that are withheld from employee paychecks. These taxes fall into two groups: Federal Income Tax and Federal Insurance Contributions Act . Federal Unemployment Tax Act is another type of tax withheld, however, FUTA is paid solely by employers.
For employees, there, unfortunately, isnt a one-size-fits-all answer to how much federal tax is taken out of my paycheck. The amount withheld depends on several factors. However, working with calculators and understanding how payroll taxes work can help give an idea of what take-home pay will look like.
Why Would A Refund Be A Bad Thing
Receiving a tax refund actually means you gave the IRS more from your paycheck than you had tomoney that you could otherwise have spent on bills, pleasure, retirement savings, or investments. The IRS held onto that extra money for you all year and is now returning it to you when you get a tax refundwithout interest. It would have served you better in a simple savings account.
Also Check: How To Find Out Your Tax Rate
Is A Pay Stub The Same As A Paycheck
Although paychecks and pay stubs are generally provided together, they are not one in the same. A paycheck is a directive to a financial institution that approves the transfer of funds from the employer to the employee. A pay stub, on the other hand, has no monetary value and is simply an explanatory document.
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.
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What To Do With The Extra Money
If your employer decides to participate in the tax deferral and you end up with extra money in your paychecks, youll want to be strategic about where you put the funds.
Normally, tax withholding is taken care of by your employer and you dont have to think about it, says Rachel Elson, an associate financial planner at Perigon Wealth Management in San Francisco. But this new policy pushes the personal finance responsibility onto the employee.
Elson recommends looking at your paycheck and getting a sense of what the normal deposit is. Then, take the extra amount and transfer it to a savings account somewhere off to the side where you wont be tempted to spend it.
Levy suggests the same, recommending people set the money aside to ensure they have it readily available to repay back taxes come 2021. It could end up being a couple of thousand dollars, she says.
If you need the money urgently, you can put it towards paying off your essentials, including bills and minimum payments on any debts.
You could also use the opportunity to pay off high-interest debt. If you have a credit card where youre paying 15-20% interest, use that extra money to knock that down, and reckon with the fact that youre going to have a lean period from January to April, Elson says.
Social Security And Medicare
If you’re employed by a private company, Social Security and Medicare taxes are deducted from your California wages. These taxes are deducted at flat-rate percentages from your gross pay before other deductions or taxes are subtracted. If you work as a public employee, such as a teacher, law enforcement officer or librarian, you may have Public Employee Retirement System, or CalPERS, contributions deducted instead of Social Security and Medicare.
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Each of these helps fund programs that pay retirement benefits, and your contributions also earn you credits for your own future benefits. Social Security is withheld at 6.2 percent and Medicare is withheld at 1.45 percent. If you have PERS deducted, the withholding percentage may fluctuate depending on your job classification and legislative changes. As of 2015, the general percentages range from 7 to 11 percent.
Recommended Reading: How To File 2016 Taxes
Overview Of Virginia Taxes
Virginia has a progressive state income tax system with four tax brackets that range from 2% to 5.75%. The bracket you fall into will depend on your income level. Since the highest rate applies to income over $17,000, most Virginia taxpayers will find themselves paying the top rate, at least partially. Filing status does not affect state income taxes in Virginia, and no cities in the state levy local income taxes.
You can’t withhold more than your earnings. Please adjust your .
|FICA and State Insurance Taxes||–%|
|State Family Leave Insurance Tax||–%|
|State Workers Compensation Insurance Tax||–%|
- Our Tax Expert
Jennifer Mansfield, CPATax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAssets tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
What Is Fica Taxes And How Much Do I Need To Pay For This
A short-term for Federal Insurance Contributions Act, FICA taxes serves as social security and Medicare taxes paid by each individual working under a U.S.-registered company. A total of 15.3% is applied to an employees gross compensation. Both employee and employer shares in paying these taxes each paying 7.65%. For self-employed individuals, they have to pay the full percentage themselves.
Read Also: What Is Low Income Tax Credit
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Federal And State Taxes
Federal tax rates vary depending on your filing status. The most favorable tax status is married filing jointly or qualifying widow or widower, followed by head of household , single, and then married filing separately.
Dependents can include minor children, dependent elderly or disabled relatives, or other relatives or non-relatives who meet IRS dependency tests. Qualifying widows and widowers can claim married filing jointly status in the two years following the death of their spouse, provided they are unmarried during the tax year and have a child, adopted child, or stepchild they can claim as a dependent.
Single status applies to taxpayers who are unmarried and have no dependents.
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Determining Federal Income Tax Withholding
The Internal Revenue Service expects taxpayers to pay taxes on wages at the time theyre earned. This is done through federal income tax withholding. The amount of federal income tax withheld varies by individual, based on the data in Form W-4, which all employees are required to submit to their employer.
The form includes information about whether a worker will file a tax return as married or single, the number of withholding allowances claimed by the worker and whether an additional amount should be withheld from each paycheck. Form W-4 includes a worksheet to help employees determine the correct amount of allowances for their financial situation. The IRS also provides a free online paycheck calculator to help determine the correct number of withholding allowances.