Federal Withholding Taxes vers

FEDERAL TAX PAYMENTS

Federal income taxes are paid on all “earned income” and,although withheld by your employer and remitted on your behalf, arenot paid by your employer. The taxes are deducted from your wagesand earnings. You also are liable for taxes on other income, suchas (some) Social Security benefits and unemployment payments, butthese taxes are not “withheld” in the manner that taxes arededucted from your paycheck. You simply must report such incomewhen you file your taxes and pay any amount owed. Your federal taxamount is unfixed, meaning that you pay a larger percentage of yourincome as you earn more (up to a 35 percent limit for those making$379,150 or more in 2011).

FEDERAL TAX WITHHELD

The amount that is withheld from an employee’s paycheck in orderto pay income taxes is determined based on the person’s incomelevel and the number of exemptions that the person claims.Withholding is usually done in standard amounts based on formulasprovided by the IRS. Employees can adjust their income taxwithholding by filing Form W-4 with their employer and designatingthe number of withholding allowances they wish to claim. Employeesdecide upon the number of withholding allowances they wish to claimbased on their expected tax liability, which depends on theirfiling status, family circumstances, other sources of income, andavailable deductions or tax credits. It is not advisable to overpaytaxes—even though the extra amount is eventually refunded to thetaxpayer—because it is like giving the government an interest-freeloan. At the same time, it is not advisable to underpay taxesbecause it may be difficult to come up with a lump-sum payment whenit is due on April 15. In addition, a taxpayer who underpays his orher income taxes by more than 10 percent may face a penalty andhave to pay the government interest on the funds owed.