The federal income tax is a system through which you need to pay a part of your income to the government and more specifically to the IRS (Internal Revenue Service). What does tax witholding calculator mean? Every employer deducts a small part of your income and withholds it as income tax. This tax can not only be deducted from your salary amount but can also be deducted from your pensions, commissions, bonuses and even with illegal money. This withheld amount by your employer is paid to the IRS.
If you are not an employee of any organization and have a business or so of your own, you need to pay the tax even then. In such a condition, you have to pay your tax amount as estimated tax. Now, what is estimated tax? Business men pay their taxes through this way. Estimated tax is to be incurred from incomes from dividends, capital gains, interests, royalties, rents and even self-employed people need to pay this tax and an alternative minimum tax as well.
Salaries and Wages: Most of the employees get the income tax deducted from their salary amount and they have no say in it. The salary of an employee includes regular pay, commissions, bonuses, allowances, etc. All these incomes are liable to tax deductions. Moreover, it also includes the reimbursements and other expense allowances that are paid under non-accountable plan.
Amount of Tax Deductions as Per Form W-4
The amount of tax that an employee has to give from his salary depends on these aspects:
- The salary of the employee
- The information provided to the employer on Form W-4
- The From W-4 has three types of information that the employer would use to decide your withholding amount:
- Whether the single rate or married rate if applied for you
- How many withholding amounts are claimed by you
- Do you want an additional amount to be withheld
New Job: If you have started a new job, you need to fill the IRS Form W-4 beforehand. This form is to be filled and given to the employer who uses it as a base to define your taxable income and the amount of tax to be deducted from your salary. You are provided with a blank form and if sometimes later you want to change the details filled by you in the form, you need to fill a new form again. In cases where you are going to work for some months of year, more of your income might be withheld. This is the case when you start your job few months after the start of the year. By using the part year method, the excessive amount of tax deduction can be prevented. However, your employer must agree to this term.
Two Jobs: If you are working at two organizations at a time or having two job going simultaneously, you need to pay tax for both of these jobs. However, this does not mean that you will be filling two Form W-4 sheets. You just have to split the allowances in the form for each job and mention them separately. You have the choice to claim the same allowances with more than one employer at the same instance, claim all from single employer and none form the other, or even divide them between the two employers.
Author Bio: I am William a finance blogger, freelancer and copyright editor from NY. Check out my site at economicrisis.com