IRS Payroll Deductions

by Tom Streissguth, studioD

Drawing a paycheck means contributing to the "pay as you go" federal tax system. The IRS requires income tax withholding, at a percentage set by the number of allowances the employee claims on Form W-4. Employers remit the funds to the agency, along with payments to the Social Security and Medicare trust funds. Filling out a W-4 form provides a short but useful education into how the tax system works.

Federal Income Tax

As an employee, you have some control over how much your employer withholds for income taxes. When you started on the job, you filled out a W-4 form and claimed allowances, from 0 to 10 if you are single or up to 15 if married filing jointly. The more allowances you claim, the less income tax will be withheld from the check. The IRS provides a worksheet with the form that will help you calculate the proper number of allowances.


An allowance is a portion of your gross pay that you claim as exempt from income tax. The allowance number is roughly equal to the number of exemptions you claim on your tax return. You are allowed an exemption for yourself, one for your spouse and one for any dependents (your own children or a relative that you're supporting). You can also claim extra allowances if you have high deductible expenses, such as home mortgage interest. However, if you have income from self-employment or investments, you may want to claim fewer allowances. The IRS taxes other sources of income as well, and having that tax withheld from a regular paycheck is easier than facing a big tax bill on April 15.


The W-4 also allows you to claim exemption from tax altogether. You can claim to be tax-exempt only if you received a refund of all taxes paid the previous year and expect a full refund for the current tax year. You can't claim to be tax-exempt if another person claims you as a dependent and your income will exceed $1,000 during the year, and includes $350 of interest, dividends or other "unearned" income. The W-4 you file with the employer when you start a job is not set in stone: At any time, you can file a new W-4 to adjust your withholding and claim more or fewer allowances.

FICA Taxes

Nobody's exempt from withholding by the Federal Insurance Contributions Act -- not even your boss. Your employer remits the money to the IRS, and the money goes to a trust fund that pays beneficiaries of the Social Security and Medicare programs. Your own eligibility for these programs -- and the amount of your Social Security retirement benefits -- is based on your contributions into the system over the years. As of 2013, the rate for FICA withholding stood at 6.2 percent for Social Security and 1.45 percent for Medicare, a rate paid by both employer and employee. On self-employment income, you pay the employer's share as well as your own.

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About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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