All employees in the United States pay federal employment taxes, unless an exemption applies. Most states, including Wisconsin, require employees to pay state income tax. Wisconsin does not require employees to pay city or local income taxes. The Fair Labor Standards Act set the federal minimum wage, which is similar to Wisconsin's minimum wage. The amount of taxes withheld from a minimum-wage paycheck depends on the employee's situation.
As of April 2011, Wisconsin's minimum wage was the same as federal law -- $7.25 per hour. A Wisconsin employee is subject to federal income tax, Social Security tax, Medicare tax and Wisconsin income tax. Federal income tax is based collectively on the employee's filing status and allowances (as shown on his W-4 form), and the federal withholding tax tables as shown in IRS Circular E; the amount of federal income tax withheld from a minimum wage paycheck depends on all these factors. Medicare and Social Security (FICA) taxes are based on flat percentages of the employee's pay. Therefore, the amount withheld from a minimum wage paycheck depends on the amount of hours the employee works during the pay period. The employee's state income tax withholding depends on the exemptions and filing status he claims on his state withholding exemption certificate (WT-4 form) and the state withholding tax tables.
Federal Income Tax Calculation
An employee's federal income tax withholding is based on multiple factors. Suppose she claims married with three allowances on her W-4 form, and works 40 hours at the Wisconsin minimum wage of $7.25 per hour, which equals $290 paid weekly. According to page 40 of the 2011 Circular E, she pays no federal income tax. But if she claims only one allowance, she pays $7. Suppose she works 30 hours at the minimum wage, which equals $217.50 weekly. If she claims single with no allowances, she pays $18. Allowances lower the employee's taxable wages and claiming single puts her in a higher tax bracket than married or head of household.
State Income Tax Calculation
Wisconsin's state income withholding process is similar to federal income tax. Suppose the employee works 80 hours biweekly, paid at the state minimum wage of $7.25 per hour, which equals $580 biweekly. He claims single with two allowances on his WT-4 form. According to the Wisconsin's Employer's Tax Guide, he pays $20 biweekly in 2011.
An employee pays 4.2 percent of her wages for Social Security tax, up to $106,800 for the year, and 1.45 percent of all her wages for Medicare tax. For example, she earns $290 weekly ($7.25 per hour x 40 hours). So, $290 x .042 = $12.18 weekly Social Security withholding.
- Payroll Taxes: Wisconsin
- U.S. Department of Labor: Minimum Wage Laws in the States
- IRS: (Circular E) Employer's Tax Guide
- Employee's Wisconsin Withholding Exemption Certificate/New Hire Reporting
- Wisconsin Department of Revenue: Wisconsin Employer's Withholding Tax Guide
- Social Security & Medicare Tax Rates
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