Allowances or Exemptions Personal
exemptions reduce the employee's taxable income on the employee's Form
1040 (US Individual Income Tax Return). Withholding allowances free
approximately the same amount of wages from income tax withholding and
therefore approximate the employee's tax liability at the end of the
year. Exemptions and allowances may be used synonymously. An
employee is entitled to federal withholdingallowances for himself, his
spouse, and his dependents. The value of a personal exemption for 2006
for federal income tax purposes is $3,300. The value of the exemption
used by upper income persons is reduced and phased out when adjusted
gross income reaches specified levels. Check with your tax professional
for definitive advice on allowances/exemptions. Back to top. Bonus or Supplemental Wages Bonus
or Supplemental wages are compensation paid to an employee in addition
to regular wages and include, but are not limited to, bonuses,
commissions, overtime pay, accumulated sick leave, severance pay,
awards and prizes, back pay, retroactive wage increases, and payments
for nondeductible moving expenses. Back to top. Cafeteria
plans, or flexible benefit plans, are employee benefit plans,
authorized by Internal Revenue Code Section 125, under which employees
may choose from among two or more benefits (consisting of cash and
qualified benefits) offered by an employer. Employee deductions to fund
the benefits are exempt from federal income tax, FICA, and, in some
states, state income tax, withholding. Benefits
that may be offered under a cafeteria plan include accident and health
insurance, dependent care assistance, group legal services, group term
life insurance (although life insurance in excess of $50,000 is
includible in gross income), and additional vacation days. Back to top. An
amount that is or may be subtracted from an employee's paycheck. They
can be taken pre-tax or after tax depending on the type of deduction.
The employee must agree to have deductions withheld from their
paycheck. Back to top. Deferred
compensation plans are employee benefit plans, under which employees
may contribute a percentage of wages to tax deferred savings plans
rather than receive the amounts as current compensation. The most
commonly used deferred compensation plan is the 401(k) plan. Employee
contributions to 401(k) plans are exempt from federal income tax and,
in some states, state income tax withholding but are not exempt from
FICA withholding. Employer contributions, made on behalf of the
employee, are also exempt from federal income tax withholding.
Contributions and earnings accumulate tax free until distributed to the
employee at retirement. The maximum amount that
an employee can elect to defer for 2006 under a 401(k) plan in which
the employee participates is $15,000. The limit is adjusted annually
for inflation. There are "catch-up" provisions available for employees
over the age of 50. Check with your plan administrator for details.
The amount that an employee may actually defer, however, is usually
lower as typical plan terms limit contributions to the lower of a
specified percentage of current wages or the statutory maximum. Back to top. A person who is claimed as a dependent must: - be a child of the employee who is either under 19 or a full-time student under 24, or
- be
a child of the employee who is a full-time student over 24 who is
reasonably expected to receive less than $3,000 of income during the
taxable year, or
- be reasonably expected to receive less than $3,000 of income during the taxable year, or
- be
permanently and totally disabled and receive income for services
performed at a sheltered workshop operated by a charity or government
- receive more than half his support from the employee;
- be
a citizen, national, or resident of the United States, or a resident of
Canada or Mexico, or an alien child adopted by and living with a United
States citizen abroad;
- and be either:
(1) a
child, grandchild, stepchild, parent, grandparent, stepparent, brother,
sister, stepbrother, stepsister, in law, aunt, uncle, nephew, or niece
of the employee, or (2) a member of the employee's household for the taxable year and have the employee's home as his principal place of abode;and not file a joint return.
Back to top.
The
taxes imposed under this law fund social security. The employer is
required to match the 6.2% social security tax rate imposed on the
employee's first $94,200 (2006) of taxable wages as well as the 1.45%
Medicare tax rate imposed on all of the employee's taxable wages. No
credits or withholding exemptions are permitted for the calculation of
FICA taxes. When there is more than one employer, each must withhold
FICA tax from the employee up to the taxable wage base. Federal Insurance Contributions Act (FICA) - Medicare | Employee |
| 1.45% on all wages | | Employer |
| 1.45% on all wages | | Self Employed |
| 2.9% on net earnings |
Federal Insurance Contributions Act (FICA) - Old Age, Survivors, and Disability Insurance (OASDI) Employee |
| 6.2% on first $94,200 of wages | Employer |
| 6.2% on first $94,200 of wages | Self employed |
| 12.4% on first $94,200 of net earnings |
Back to top. Federal Withholding Rates (FIT)
Single Individuals and those filing as Head of Household -
2007
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$2,650 |
|
$0 |
|
0% |
|
$0.00 |
| <$10,120 |
|
$0.00 |
|
10% |
|
$2,650 |
|
< $33,520 |
|
$747.00 |
|
15% |
|
$10,120 |
|
< $77,075 |
|
$4,257.00 |
|
25% |
|
$33,520 |
|
< $162,800 |
|
$15,145.75 |
|
28% |
|
$77,075 |
|
< $351,650 |
|
$39,148.75 |
|
33% |
|
$162,800 |
|
> $351,650 |
|
$101,469.25 |
|
35% |
|
$351,650 |
Single Individuals and those filing as Head of Household - 2006 Income |
| Pay |
| + % of |
| Amount > | <$2,650 |
| $0 |
| 0% |
| $0.00 | | <$10,000 | | $0.00 | | 10% | | $2,650 | < $32,240 |
| $735.00 |
| 15% |
| $10,000 | < $73,250 |
| $4,071.00 |
| 25% |
| $32,240 | < $156,650 |
| $14,323.50 |
| 28% |
| $73,250 | < $338,400 |
| $37,675.50 |
| 33% |
| $156,650 | > $338,240 |
| $97,653.00 | | 35% |
| $338,400 |
Single Individuals and those filing as Head of Household - 2005 Income |
| Pay |
| + % of |
| Amount > | <$2,650 |
| $0 |
| 0% |
| $0.00 | | <$9,800 | | $0.00 | | 10% | | $2,650 | < $31,500 |
| $705.00 |
| 15% |
| $9,800 | < $69,750 |
| $3,970.00 |
| 25% |
| $31,500 | < $151,950 |
| $13,532.50 |
| 28% |
| $69,750 | < $328,250 |
| $36,548.50 |
| 33% |
| $151,950 | > $328,250 |
| $94,727.50 | | 35% |
| $328,250 |
Back to top. Married Individuals Filing Jointly and Surviving Spouses -
2007
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$8,000 |
|
$0 |
|
0% |
|
$0.00 |
| <$23,350 |
|
$0.00 |
|
10% |
|
$8,000 |
|
< $70,700 |
|
$1,535.00 |
|
15% |
|
$23,350 |
|
< $133,800 |
|
$8,637.50 |
|
25% |
|
$70,700 |
|
< $203,150 |
|
$24,412.50 |
|
28% |
|
$133,800 |
|
< $357,000 |
|
$43,830.50 |
|
33% |
|
$203,150 |
|
> $357,000 |
|
$94,601.00 |
|
35% |
|
$357,000 | Married Individuals Filing Jointly and Surviving Spouses - 2006 Income |
| Pay |
| + % of |
| Amount > | <$8,000 |
| $0 |
| 0% |
| $0.00 | | <$22,900 | | $0.00 | | 10% | | $8,000 | < $68,040 |
| $1,490.00 |
| 15% |
| $22,900 | < $126,900 |
| $6,261.00 |
| 25% |
| $68,040 | < $195,450 |
| $22,976.00 |
| 28% |
| $126,900 | < $343,550 |
| $42,170.00 |
| 33% |
| $195,450 | > $343,550 |
| $91,043.00 | | 35% |
| $343,550 |
Back to top. Married Individuals Filing Jointly and Surviving Spouses - 2005 Income |
| Pay |
| + % of |
| Amount > | <$8,000 |
| $0 |
| 0% |
| $0.00 | | <$22,600 | | $0.00 | | 10% | | $8,000 | < $66,200 |
| $1,460.00 |
| 15% |
| $22,600 | < $120,750 |
| $8,000.00 |
| 25% |
| $66,200 | < $189,600 |
| $21,637.50 |
| 28% |
| $120,750 | < $333,250 |
| $40,915.50 |
| 33% |
| $189,600 | > $333,250 |
| $88,320.00 | | 35% |
| $333,250 |
Back to top. Single, Married Filing Jointly, Married Filing Separately, Head of Household and Exempt Employees must indicate their status on, the employer must withhold according to the correct employee table. Back to top. A
garnishment is a court action initiated by a creditor in an effort to
obtain a part of an employee's earnings before the earnings are turned
over to the employee. Back to top. Wages, before necessary taxes and voluntary deductions have been withheld. Back to top. Also known as Take Home Pay, it is income after necessary deductions and taxes have been withheld. Back to top. An
employee who receives cash tips of $20 or more in a month must report
them to his employer by the 10th day of the following month. Employers
are subject to FICA taxes on the reported tip income. If
a tipped employee also earns regular wages, the amount to withhold on
tips should be figured as if the tips were a supplemental wage payment.
If income tax was withheld from regular wages you may withhold on the
tips at a flat 25% rate or you may add them to the regular wages and
withhold as if the total were a single wage payment. If income tax was
not withheld from regular wages, the 25% supplemental rate may not be
used.Back to top.
|