Question: I have an employee. She is single with 3 allowances for federal tax withholding. She is paid at $21.79/hour and 21 hours per pay period. We paid her twice a month. I used your ezPaycheck payroll software to generate the paycheck. However, I find $0 federal tax withhold on her paycheck. Is it correct? Why?
Answer: Your employee can claim allowances on the W-4. Each allowance will lower her taxable income. The more allowances she claims the less federal income tax she pays; the less she claims, the more federal tax she pays.
The standard deduction is $3,900 per year (For Year 2013).
For your employee, her taxable income is not high enough to withhold federal tax. Here are the step by step calculations.
1. Gross pay for each paycheck:
$21.79*21 hours= $457.59
For each pay period, the gross pay is $457.59
2. Deductions for each paycheck:
The standard deduction is $3,900 per year (For Year 2013).
She can get total deductions
$3,900 X 3 = $11,700
For each pay period the deduction is:
$11,700 / 24 = $487.50
3. Taxable income for each paycheck
So for each paycheck, the taxable income is:
457.59 - $487.50 = - $29.91
So for this employee, her taxable income is $0. So you will see $0 federal tax on this paycheck.
Related Links
http://www.halfpricesoft.com/payroll-software/how-to-calculate-federal-withholding-tax.asp
http://www.halfpricesoft.com/federal_income_tax_2013.asp
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