Can Federal Withholding Vary Based on Gross Pay?
Federal tax withholding is based on your taxable wages, which can equal your gross pay or your pay after qualifying pretax deductions, such as a Section 125 medical or dental plan or a flexible spending account. If you have no pretax deductions, your withholding is based on your gross pay. Depending on your situation, your withholding can fluctuate.
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Identification
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Federal tax withholding covers federal income tax, Social Security tax and Medicare tax. Your employer takes these taxes out of your paychecks and pays them to the Internal Revenue Service (IRS). Your gross pay consists of your wages before deductions.
Determination
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If your federal withholding is based on your gross pay, the amount can change if you do not earn the same amount each pay period. Taxes are based on a percentage of your income; if you earn more, your tax liability increases, and if you earn less, it decreases. For example, if you are salaried, you are likely paid the same amount each payday, unless you have a change in your salary or deductions. In this case, your withholding is likely to stay the same each payday. If you are paid hourly and you do not work the same number of hours each payday, your gross pay and withholding change.
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FICA Calculations
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Social Security and Medicare taxes are also called FICA taxes -- the Federal Insurance Contributions Act mandates their collection. At the time of publication, your employer calculates Social Security tax at 4.2 percent of your gross income up to $106,800 for the year, and Medicare tax at 1.45 percent of all of your gross compensation. For example, if you earn $400 one week and $450 the following week, your Social Security withholding is $16.80 the first and $18.90 the following week.
Calculation
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Federal income tax withholding is based on your gross pay, filing status, allowances and IRS Circular E's federal tax-withholding tables. For example, if you earn $375 one week, $480 in the following week, and claim single filing status with two allowances on your W-4, according to page 38 of the 2011 Circular E, your federal income tax withholding is $21 the first week and $37 the second week.
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