About Federal Income Tax Withholdings

Federal income tax withholding is the types of taxes that are taken out of your paycheck.  This tax includes Social Security, income tax and Medicare.  Understanding your Federal income tax withholding is important to make sure you are not paying too many taxes or not enough. without support around lenses.

There are three types of withholding taxes in the US:

• Earned income withholding taxes


• Withholding tax payments to foreign entities or persons


• Dividend and interest backup withholding taxes

Earned Income.  Earned Income Withholding is dependent on the declaration on the W-4 form given to you by your employer. If you are earning minimum wage, you may not be eligible for income tax withholding.  If your income from one employer exceeds US Federal limits, your Social Security payments will level off.  The IRS offers "exemptions" which offset your withholding.  If your exemptions exceed withholding, you may be entitled to a refund on taxes withheld from your paycheck.

Payments to Foreign persons or corporations.  Selected types of payments made to foreign persons or corporations must be withheld on your income tax.   Payments on royalty, annuities, services, rents and dividends must be declared.  Unless reduced under treaty, the tax withheld is 30%.

Backup Withholding.  Payers of interest, dividends are usually 10 percent for tax withholding. This applies if the you fail to report your tax id on the W-4 form and if the IRS tells you to pay backup withholding and you are a US citizen.  Other circumstances may be applicable.

Reporting withholding taxes. Your employer should file the form 941--Report of Aggregate Withholding Taxes, quarterly. This report includes Social Security and Medicare withholding calculations.  If a partnership is making these payments, then form 8813 should also be filed. 

Payment of withheld taxes.  Payments must be made promptly to the appropriate government agency to avoid late fees and penalties.  As of January 1, 2011, payments are made through EFT directly to the IRS.