Allowances or
Exemptions
Personal exemptions reduce the employee's taxable income on
the employee's Form 1040 (US Individual Income Tax Return). Withholding
allowances free approximately the same amount of wages from income tax
withholding and therefore approximate the employee's tax liability at the end of
the year. Exemptions and allowances may be used synonymously.
An employee is entitled to federal withholdingallowances for
himself, his spouse, and his dependents. The value of a personal exemption for
2006 for federal income tax purposes is $3,300. The value of the exemption used
by upper income persons is reduced and phased out when adjusted gross income
reaches specified levels. Check with your tax professional for definitive advice
on allowances/exemptions. Back
to top.
Bonus or Supplemental Wages
Bonus or Supplemental wages are compensation paid to an
employee in addition to regular wages and include, but are not limited to,
bonuses, commissions, overtime pay, accumulated sick leave, severance pay,
awards and prizes, back pay, retroactive wage increases, and payments for
nondeductible moving expenses. Back to top.
Cafeteria plans, or flexible benefit plans, are employee
benefit plans, authorized by Internal Revenue Code Section 125, under which
employees may choose from among two or more benefits (consisting of cash and
qualified benefits) offered by an employer. Employee deductions to fund the
benefits are exempt from federal income tax, FICA, and, in some states, state
income tax, withholding.
Benefits that may be offered under a cafeteria plan include
accident and health insurance, dependent care assistance, group legal services,
group term life insurance (although life insurance in excess of $50,000 is
includible in gross income), and additional vacation days. Back to top.
An amount that is or may be subtracted from an employee's
paycheck. They can be taken pre-tax or after tax depending on the type of
deduction. The employee must agree to have deductions withheld from their
paycheck. Back to top.
Deferred compensation plans are employee benefit plans, under
which employees may contribute a percentage of wages to tax deferred savings
plans rather than receive the amounts as current compensation. The most commonly
used deferred compensation plan is the 401(k) plan.
Employee contributions to 401(k) plans are exempt from federal
income tax and, in some states, state income tax withholding but are not exempt
from FICA withholding. Employer contributions, made on behalf of the employee,
are also exempt from federal income tax withholding. Contributions and earnings
accumulate tax free until distributed to the employee at retirement.
The maximum amount that an employee can elect to defer for
2006 under a 401(k) plan in which the employee participates is $15,000. The
limit is adjusted annually for inflation. There are "catch-up" provisions
available for employees over the age of 50. Check with your plan administrator
for details. The amount that an employee may actually defer, however, is usually
lower as typical plan terms limit contributions to the lower of a specified
percentage of current wages or the statutory maximum. Back to top.
A person who is claimed as a dependent must:
- be a child of the employee who is either under 19 or a full-time student
under 24, or
- be a child of the employee who is a full-time student over 24 who is
reasonably expected to receive less than $3,000 of income during the taxable
year, or
- be reasonably expected to receive less than $3,000 of income during the
taxable year, or
- be permanently and totally disabled and receive income for services
performed at a sheltered workshop operated by a charity or government
- receive more than half his support from the employee;
- be a citizen, national, or resident of the United States, or a resident of
Canada or Mexico, or an alien child adopted by and living with a United States
citizen abroad;
- and be either:
(1) a child, grandchild, stepchild, parent, grandparent,
stepparent, brother, sister, stepbrother, stepsister, in law, aunt, uncle,
nephew, or niece of the employee, or
(2) a member of the employee's household for the taxable year
and have the employee's home as his principal place of abode;and not file a
joint return.
Back to
top.
The taxes imposed under this law fund social security. The
employer is required to match the 6.2% social security tax rate imposed on the
employee's first $94,200 (2006) of taxable wages as well as the 1.45% Medicare
tax rate imposed on all of the employee's taxable wages. No credits or
withholding exemptions are permitted for the calculation of FICA taxes. When
there is more than one employer, each must withhold FICA tax from the employee
up to the taxable wage base.
Federal Insurance Contributions Act (FICA) - Medicare
| Employee |
|
1.45% on all wages |
| Employer |
|
1.45% on all wages |
| Self Employed |
|
2.9% on net earnings |
Federal Insurance Contributions Act (FICA) - Old Age,
Survivors, and Disability Insurance (OASDI)
|
Employee |
|
6.2% on first $94,200 of wages |
|
Employer |
|
6.2% on first $94,200 of wages |
|
Self employed |
|
12.4% on first $94,200 of net earnings |
Back to
top.
Federal Withholding Rates (FIT)
Single Individuals and those filing as Head of Household -
2007
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$2,650 |
|
$0 |
|
0% |
|
$0.00 |
| <$10,120 |
|
$0.00 |
|
10% |
|
$2,650 |
|
< $33,520 |
|
$747.00 |
|
15% |
|
$10,120 |
|
< $77,075 |
|
$4,257.00 |
|
25% |
|
$33,520 |
|
< $162,800 |
|
$15,145.75 |
|
28% |
|
$77,075 |
|
< $351,650 |
|
$39,148.75 |
|
33% |
|
$162,800 |
|
> $351,650 |
|
$101,469.25 |
|
35% |
|
$351,650 |
Single Individuals and those filing as Head of Household -
2006
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$2,650 |
|
$0 |
|
0% |
|
$0.00 |
| <$10,000 |
|
$0.00 |
|
10% |
|
$2,650 |
|
< $32,240 |
|
$735.00 |
|
15% |
|
$10,000 |
|
< $73,250 |
|
$4,071.00 |
|
25% |
|
$32,240 |
|
< $156,650 |
|
$14,323.50 |
|
28% |
|
$73,250 |
|
< $338,400 |
|
$37,675.50 |
|
33% |
|
$156,650 |
|
> $338,240 |
|
$97,653.00 |
|
35% |
|
$338,400 |
Single Individuals and those filing as Head of Household -
2005
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$2,650 |
|
$0 |
|
0% |
|
$0.00 |
| <$9,800 |
|
$0.00 |
|
10% |
|
$2,650 |
|
< $31,500 |
|
$705.00 |
|
15% |
|
$9,800 |
|
< $69,750 |
|
$3,970.00 |
|
25% |
|
$31,500 |
|
< $151,950 |
|
$13,532.50 |
|
28% |
|
$69,750 |
|
< $328,250 |
|
$36,548.50 |
|
33% |
|
$151,950 |
|
> $328,250 |
|
$94,727.50 |
|
35% |
|
$328,250 |
Back to
top.
Married Individuals Filing Jointly and Surviving Spouses -
2007
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$8,000 |
|
$0 |
|
0% |
|
$0.00 |
| <$23,350 |
|
$0.00 |
|
10% |
|
$8,000 |
|
< $70,700 |
|
$1,535.00 |
|
15% |
|
$23,350 |
|
< $133,800 |
|
$8,637.50 |
|
25% |
|
$70,700 |
|
< $203,150 |
|
$24,412.50 |
|
28% |
|
$133,800 |
|
< $357,000 |
|
$43,830.50 |
|
33% |
|
$203,150 |
|
> $357,000 |
|
$94,601.00 |
|
35% |
|
$357,000 |
Married Individuals Filing Jointly and Surviving Spouses -
2006
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$8,000 |
|
$0 |
|
0% |
|
$0.00 |
| <$22,900 |
|
$0.00 |
|
10% |
|
$8,000 |
|
< $68,040 |
|
$1,490.00 |
|
15% |
|
$22,900 |
|
< $126,900 |
|
$6,261.00 |
|
25% |
|
$68,040 |
|
< $195,450 |
|
$22,976.00 |
|
28% |
|
$126,900 |
|
< $343,550 |
|
$42,170.00 |
|
33% |
|
$195,450 |
|
> $343,550 |
|
$91,043.00 |
|
35% |
|
$343,550 |
Back to
top.
Married Individuals Filing Jointly and Surviving Spouses -
2005
|
Income |
|
Pay |
|
+ % of |
|
Amount > |
|
<$8,000 |
|
$0 |
|
0% |
|
$0.00 |
| <$22,600 |
|
$0.00 |
|
10% |
|
$8,000 |
|
< $66,200 |
|
$1,460.00 |
|
15% |
|
$22,600 |
|
< $120,750 |
|
$8,000.00 |
|
25% |
|
$66,200 |
|
< $189,600 |
|
$21,637.50 |
|
28% |
|
$120,750 |
|
< $333,250 |
|
$40,915.50 |
|
33% |
|
$189,600 |
|
> $333,250 |
|
$88,320.00 |
|
35% |
|
$333,250 |
Back to
top.
Single, Married Filing Jointly, Married Filing Separately,
Head of Household and Exempt
Employees must indicate their status on, the employer must
withhold according to the correct employee table. Back to top.
A garnishment is a court action initiated by a creditor in an
effort to obtain a part of an employee's earnings before the earnings are turned
over to the employee. Back to
top.
Wages, before necessary taxes and voluntary deductions have
been withheld. Back to
top.
Also known as Take Home Pay, it is income after necessary
deductions and taxes have been withheld. Back to top.
An employee who receives cash tips of $20 or more in a month
must report them to his employer by the 10th day of the following month.
Employers are subject to FICA taxes on the reported tip income.
If a tipped employee also earns regular wages, the amount to
withhold on tips should be figured as if the tips were a supplemental wage
payment. If income tax was withheld from regular wages you may withhold on the
tips at a flat 25% rate or you may add them to the regular wages and withhold as
if the total were a single wage payment. If income tax was not withheld from
regular wages, the 25% supplemental rate may not be used.Back to top. |