The more allowances a taxpayer claims the lower the

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: . The more allowances a taxpayer claims, the lower the amount of income tax withheld from earnings. A taxpayer is usually allowed one personal allowance and one allowance for each person he or she supports (such as a child). Some employees are exempt from federal income tax withholding. An employee is not required to have income tax withheld if he or she did not have a federal income tax liability in the previous year, expects no tax liability this year, has income of $700 or less including nonwage income such as savings account interest, and cannot be claimed as a dependent on someone else’s tax return. An exempt employee writes EXEMPT on Form W-4 so the employer will know not to withhold federal income tax. Tax Tables. An employee’s gross earnings affect the amount withheld for federal income taxes. Most employers use IRS tables to determine the amount of federal tax to withhold. See Figure 12 – 4 for tables for single and married persons paid weekly. Other tax tables are available. Let’s use the tables to determine the tax withheld for Emily Kardos. She is single and claims no allowances. For the week ending June 30, she earned $243. This amount falls between $240 and $250 on the tax table for single persons. Reading across this line to the column for zero withholding allowances, you find that $29 is withheld from Emily’s gross earnings. Social Security Tax Employers also collect social security taxes for the federal government. Established by the Federal Insurance Contributions Act (FICA) in 1935, social security taxes are often called FICA taxes. FICA taxes have two components: social security and Medicare. Each is listed separately on payroll records. The social security tax funds programs that provide income to certain individuals: 1. The old-age and disability insurance programs provide income to people who are retired or disabled and their dependent children. 2. The survivors’ benefits program provides income to the spouse and dependent children of a...
View Full Document

This note was uploaded on 01/16/2014 for the course BUSINESS Accounting taught by Professor Dr.stevenhall during the Fall '13 term at Del Mar College.

Ask a homework question - tutors are online