How Much Will I Pay in Taxes If My Employer Doesn't Withhold Taxes?
In the U.S., the states and the federal government usually require employers to withhold estimated taxes from employees. The Internal Revenue Service refers to these withheld amounts as payroll taxes. After employees are hired, they must fill out IRS Form-W4, which determines their estimated tax liability. If these employees do not anticipate paying much tax by the end of the year, they may choose not to have taxes withheld from their paychecks. In this instance, employees will have to pay these taxes when they file their annual tax returns.
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Federal
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Sometimes an employee who does not want taxes withheld from his or her paycheck will miscalculate his federal tax obligation. If the employee ends up owing money to the IRS after deductions, they will pay a progressive tax rate on this income.
Tax Brackets
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For the 2010 tax year, single employees who have taxable income between zero and $8,375 over the course of the year fall into the 10 percent income bracket. The IRS requires taxpayers to pay 15 percent tax on amounts over $8,375 and up to $34,000 in a year. These federal income tax rates go up three more brackets to a high of 35 percent in the 2010 tax year for amounts earned over $373,650.
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State
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If employees claim that they do not make enough to have state income tax withheld from their paychecks, they may still be responsible for income taxes if they have calculated their state income tax liability incorrectly. State income taxes vary. Some states charge no income tax or a flat income tax. For example, Florida does not charge income tax, while Virginia charges a 5 percent flat income tax. Other states have a progressive income tax where high wage earners pay a higher percentage of tax.
Social Security
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The federal government uses Federal Insurance Contributions Act, or FICA, taxes to fund Social Security and Medicare. Social Security provides a monthly pension to the retired and the disabled. As of 2010, an employee is responsible for a tax of 6.2 percent for Social Security. The employer matches this amount out of his or her pocket. Companies issue freelancers IRS-1099 forms, where the freelancer is responsible for remitting the entire 12.4 percent in Social Security tax. Employees who make a token amount of money each year are still required to pay Social Security taxes, but these amounts are not required to be withheld by an employer.
Medicare
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Medicare provides medical care for the retired and disabled. Employees contribute 1.45 percent for Medicare, with the employer covering the other half. If employees work on a part-time basis, they may have Medicare tax withheld from their paycheck but must remit 1.45 percent of their gross income when filing taxes.
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References
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