Understand the income tax on your paycheck

The amount of income tax that comes out of your paychecks depends on a couple of factors, but the two most important are the W-4 and your annual income. Review these facts to learn more.

Your federal withholding is zero. In January 2020, the IRS released a new W-4 and increased the Standard Deduction. These changes lowered the amount of federal withholding on your paycheck.  So even if ‌you had money come out before, it could be $0 now.

Why is this happening now? It all boils down to the new W-4. Maybe you changed jobs, or maybe you just reviewed the form at the beginning of the year. If you updated your W-4 or filled out a new one, you are now subject to new IRS withholding rules. 

The new IRS calculations put more money in your pocket throughout the year. But you’ll get less of a refund at the end of the year when you file your taxes.

How much money do you make? Sometimes you just don’t make enough in wages to have any federal withholding taken out. 

For example, if your filing status is Single and you get paid every two weeks, you’d have to make at least $598.12, before any federal withholding gets taken out. 

Your federal withholding is different for each paycheck. Sometimes it has some withholding, and other times it's $0. Tax calculations annualize each paycheck. If you are an hourly employee and your hours vary paycheck to paycheck, then so will your federal income tax amounts.

So let’s say you got paid $500 this week and you normally get paid every two weeks. The federal income tax calculation would be based on a salary of ($500 x 26) $13,000. If you file as Single, per IRS guidelines, you wouldn’t have any federal withholding taken out. But, suppose that next payday you get paid $1,000 instead. In that case, the federal income tax calculation is based on a salary of ($1,000 x 26) $26,000.  That amount would have tax withheld.

You can check out this IRS Publication 15-T to learn more about your calculations.

What can you do? Remember, if you have correctly filled out your W-4, and nothing else has changed, your deductions are correct. But if you do want to have extra ‌withholding, you can review and update your W-4 or provide a new W-4 to your employer anytime.