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- Tax Changes if I'm Getting Married
- How to Change a Withholding So That You Don't Pay in Enough to Get a Federal Tax Refund
- How to Estimate Retirement Tax Withholding
- What Happens if You Change Your Withholding to Exempt?
- How to Change Local Income Tax Withheld
If you base your budget on your take-home pay, a sudden change in your federal withholding can throw a wrench in your financial plans. Though knowing the reason for the change in withholding might not make you happy, you can at least rest assured your employer's not siphoning off extra from your wages.
Increased Income Taxes
Your tax withholding is designed to mirror your estimated federal tax liability, so if income tax rates go up, you can expect your tax withholding to increase as well. For example, starting with the 2013 tax year, the top tax bracket increased from 35 percent to 39.6 percent for single taxpayers earning over $400,000 or joint filers with over $450,000 of taxable income. If you're doing well enough to be affected by the tax increase, you'll see extra money withheld from your paycheck for the higher tax bill you will owe at the end of the year.
Increased Employment Taxes
Though the Social Security and Medicare tax have been relatively stable, at least compared with income tax rates, they're not set in stone. When these rates increase, so does your withholding, even if you're still making the same salary. For example, in 2011 and 2012, the employee portion of the Social Security tax dropped from 4.2 percent to 6.2 percent. When it returned to 6.2 percent in January 2013, more money was withheld from employee's wages. If you make $50,000 a year, you will see a total of $1,000 less in your paychecks over the course of the year.
If you submitted a new W-4 to your employer, the changes could cause your tax withholding to go up. For example, each personal allowance you claim on the form lowers your income subject to withholding. So, if you had a child leave the nest, that's one less allowances. In addition, if you switch your filing status from married to single, such as if you get a divorce, your withholding rate will go up too. You can always ask your employer to withhold extra to cover taxes on other income that isn't subject to withholding, like interest or dividends.
Getting a Raise
Even if tax rates haven't changed, your withholding might go up when you get a raise. The federal income tax is a progressive tax, which means that as you earn more, you pay a higher rate. For example, in 2012 you paid only 10 percent on the first $8,700 of your taxable income if you were single. But, income between $8,700 and $35,350 was taxed at 15 percent. If you got a raise that pushed you above that, more will be withheld because income between $35,350 and $85,650 is taxed at 25 percent.
- Internal Revenue Service: 2012 Tax Tables
- Internal Revenue Service: Topic 753 - Form W-4 – Employee's Withholding Allowance Certificate
- Social Security Administration: FICA & SECA Tax Rates
- USA Today: Deal Means Taxes Will Rise For Most Americans
- Cato Institute: Evolution of Federal Income Tax Withholding: The Machinery of Institutional Change
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