Withholding
Unraveling Withholding: A Brief Overview
Understanding Withholding
- Definition: A deduction from employee wages for tax payments.
- Objective: Minimizes tax payments during annual filing.
Withholding Tax Purpose
- Enhancing Wellbeing: Funds health, education, Social Security, and agriculture sectors.
- Tax Compliance: Ensures all residents contribute to income taxes.
Calculation of Withholding
- W-4 Form Submission:
- Initiation: New employees provide essential details on the W-4 Form.
- Factors Considered: Income, marital status, dependents, and job count.
- For Non-Residents (1040NR):
- Requirement: Non-residents in a U.S. trade or business complete Form 1040NR.
- Calculation Components:
- Essentials: W-4 Form or 1040 NR, payroll period details, adjusted gross pay.
- Methods: Choose between wage bracket and percentage methods.
- IRS Assistance:
- Tool: Utilize the IRS Tax Withholding Estimator for accurate calculations.
Refunding Withholding Taxes
- General Rule: Withholding taxes are non-refundable.
- Exception: Refund possible if calculation error leads to excess withholding.
Average Withholding Figures (Pre-2020)
- Calculation Basis: Determined by the number of withholding allowances claimed.
- Example Figures (2019):
- Weekly: $80.80 per allowance.
- Biweekly: $161.50 per allowance.
- Monthly: $350 per allowance.
Post-2020 Changes in Form W-4
- Abandoning Allowances: No personal allowances in the revamped 2020 Form W-4.
- Dependency Adjustment: Calculation involves multiplying dependents under 17 by $2,000.
- Transition for Existing Forms: Employees using pre-2020 W-4 forms not required to file new forms; employers continue using the latest information.