The withholding of tax
The withholding of tax is the amount of money taken from your paycheck by your employer and sent to the government as a payment towards income tax.
An employer can make one of two mistakes if you do not specify how much to withhold from your paycheck. The first is removing unnecessary taxes from your pay such as social security and medicare tax. As a nonresident, you are not required to pay those two taxes.
If you have paid social security or medicare taxes on your tax return in error, you should first contact that employer for reimbursement. The employer can make changes to your employment tax return to get back the Social Security and Medicare taxes you paid to the IRS. If the employer does not refund the withheld taxes, then you can file a refund claim on Form 843.
The other mistake is not removing any federal taxes from your paycheck. This means that you haven’t paid any taxes throughout the year and you will have a huge tax bill. Both mistakes can be avoided if you have the correct amount of taxes deducted from your paycheck.
How much tax should come out of your paycheck?
It depends on the tax bracket your income falls into. If your income falls into the 10% tax bracket, you’ll be taxed at 10%. If your income falls into a higher tax percent, then you’ll have to pay the higher percent. See all tax percentages here.
Allow your employer to take taxes from your paycheck automatically
If you were to allow your employer to take out taxes each time you receive a paycheck, you would end up paying all your taxes throughout the year instead of paying your taxes as one lump sum before the tax deadline. This could result in you having a tax refund if you paid too much tax during the year.
Lets say you received 10 paychecks within the year which totaled $5,000. The amount of tax to be paid would be $500 (10% of $5,000).
No automatic withdrawal set up
If you did not set up an automatic withdrawal of taxes from your paycheck, then you would end up with a tax bill of $500. Many of you probably experienced this before when you filed your taxes and were told that you had a huge tax bill which you were unable to pay. This could all be avoided if you had your taxes removed from your paycheck each pay period.
Automatic withdrawal set up
On the other hand, if you did set up an automatic withdrawal of taxes from your paycheck, then you would have paid your taxes each pay period automatically. So, what this means is that your employer would have deducted all your taxes from your paycheck. If they did this over the 10 pay periods, then the total amount of taxes you paid for the year would total $500. So, when you file your taxes, your tax bill would be zero instead of $500.
How to set up an automatic withdrawal of taxes from your paycheck?
The way to set this up is by using form W-4. When you receive a job, your employer gives you this form to fill out. On this form, you will see in box 4c the option to add an additional amount for withholding. This lets your employer know that you want them to remove additional money from your paycheck to pay your taxes throughout the year.
How much money should you tell your employer to remove?
The recommended amount to be removed from your pay should be between 10-12 percent if you fall into the 10-12 percent tax bracket. So, if you make $100 every pay period, you should deduct $10-$12 each pay period for additional withholding. If you are already working on the job and you have not requested an additional amount to be removed from your paycheck, you can go to your payroll manager to update your W-4 form.
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