topic Re: Tax Question in Personal Finance

Tax Question

babbles — Sat, 21 Nov 2020 22:39:37 GMT

Trying to get a tax question answered, my part time job is telling me I don't make enough to pay Fed taxes even though I done two W-4s so far, I thought everyone pays fed taxes no matter how much you make??

Re: Tax Question

chiefone4u — Sat, 21 Nov 2020 23:06:07 GMT

While I can't currently locate the IRS document online, I believe if you earn less than $12,000 a year you are exempt from federal tax withholding.

If you have multiple jobs, you fill out a W4 at your highest earning employer declaring the income from other jobs to have the appropriate amount of taxes withheld.

Re: Tax Question

simplynoir — Sat, 21 Nov 2020 23:11:54 GMT

There are a few exceptions made where a person is exempt from federal tax holdings through either an employer or employee. Examples are earning enough to qualify to pay for taxes and business exemptions are the main reasons

I noticed that you said it was a part time job. Is it a side gig and you have a full time job? And if you do have a FT job did you mention your other job(s) on your W-4 so your employer can calculate the proper taxes to be withdrawn?

Edit: @chiefone4u beat me to it

Re: Tax Question

chiefone4u — Sat, 21 Nov 2020 23:29:08 GMT

@chiefone4u wrote:
While I can't currently locate the IRS document online, I believe if you earn less than $12,000 a year you are exempt from federal tax withholding.

If you have multiple jobs, you fill out a W4 at your highest earning employer declaring the income from other jobs to have the appropriate amount of taxes withheld.

This link >>> https://www.irs.gov/individuals/tax-withholding-estimator <<< will help you figure out how to fill out the W4 for your highest paying employer.

Re: Tax Question

K-in-Boston — Sun, 22 Nov 2020 00:04:23 GMT

When more than one source of income is involved (including in a jointly filing household), it is very common for withholdings to be incorrect. By default and filling in a Form W-4 as written in these cases, Job B's payroll amounts will be based solely on earnings at Job B, and not be based on Job A plus B. You can elect to have either a fixed (or additional) dollar amount or percentage taken out rather than what is calculated based solely on your filing status, exemptions, current earnings (on that payroll check), and pay frequency.

For simplicity, let's say that you are a single person and have a full time primary job paying $85,525 per year. You then take a part time job earning $10,000 a year (roughly 12 hours or so a week at $15/hr). Full time job taxes you as though you make $85,525. Part time job taxes you as though you make $10,000 a year, which places you under the federal poverty level and would result in little or no federal taxes being deducted from your checks.

However, the federal tax rates for a single person are 10% up to $9,875, 12% for the income from $9,876 to $40,125, 22% for the income between $40,126 and $85,525, 24% for the income from $85,526 to $163,300, on and on until the 37% bracket. So that $10k part time job is being taxed at the bottom of the chart while it actually should be taxed at the 24% rate so depending on how you fill out your W-4 you will have likely underpaid federal taxes somewhere between $1000 and $2400 for the part time income.

I grossly simplified that example just to show where the issue is with more than one income; the actual numbers will likely be far different as you will either have standard or itemized deductions reducing your taxable income, among many other factors that ultimately determine the amount of tax owed. Also important to note that in the rates above, someone with $100,000 of adjusted taxable income for example is not paying 24% federal tax on that full amount, only on the $14,475 of income above the lower tiers - anyone with an adjusted taxable income of $9876 or $1,000,000,000,000.00 is still paying 10% for that first $9875.

Re: Tax Question

babbles — Sun, 22 Nov 2020 15:04:43 GMT

Thanks for the replies no, that is my only employment, sorry for confusion! I am married filing jointly

Re: Tax Question

chiefone4u — Sun, 22 Nov 2020 15:34:42 GMT

@babbles wrote:
Thanks for the replies no, that is my only employment, sorry for confusion! I am married filing jointly

In that instance your spouse should report your income on their W4 if their income is the larger income.

The link I shared above allows you to put both partners income in to calculate how to fill out the new W4's (they were changed in 2020).

Re: Tax Question

babbles — Sun, 22 Nov 2020 15:42:57 GMT

Thanks, she definitely makes more and I am started on that calculator right now! Appreciate it!

Re: Tax Question

JVille — Mon, 23 Nov 2020 15:49:41 GMT

Your employer is not an Accountant or CPA. Your employer is required to pay Social Security for ALL employees regardless of how little you make. Unless they hired you as a private contractor then they need to give you a 1099 for income paid to you. So it's one or the other W2 or 1099. It's up to your tax preparation person and IRS to decide who pays taxes. Not your employer.
FYI - if you get a 1099 that makes you self employed and is not a good this when trying to get a mortgage.

Re: Tax Question

Revelate — Sat, 28 Nov 2020 16:03:36 GMT

In the case of 1099's there is a minimum dollar amount (I believe it is currently $600) under which you may not receive a 1099 in which case it's up to you to voluntarily report it. In practice a lot of people I know don't but different issue.

1099's aren't a death sentence for a mortgage but it's basically 2 years of tax returns to prove income whereas as a W2 employee I can do that with 2 paystubs. Having been on both sides of that coin there's plusses and minuses to getting paid via 1099, you can do a lot of catchup in solo 401K's for example for retirement savings if you have enough self-employed income and you can deduct certain business expenses which may defray some of your regular expenses too, but on the flipside it's a lot more documentation and therefore onerous for things like mortgages.

Re: Tax Question

JVille — Sat, 28 Nov 2020 16:37:17 GMT

Unclear if original poster is a regular W2 employee or a 1099 Contract worker. Statement about what the employer said only confused the issue..... @babbles

Re: Tax Question

chiefone4u — Sat, 28 Nov 2020 22:05:52 GMT

@JVille wrote:
Unclear if original poster is a regular W2 employee or a 1099 Contract worker. Statement about what the employer said only confused the issue..... @babbles

While only an assumption on my part the question:

"Trying to get a tax question answered, my part time job is telling me I don't make enough to pay Fed taxes even though I done two W-4s so far, I thought everyone pays fed taxes no matter how much you make??"

Makes me think @babbles is a W2 employee not a 1099 employee (I've personally never filled out a W4 when hiring on as independent contractor-- always had to fill out a W9).

Re: Tax Question

JVille — Sat, 28 Nov 2020 22:32:14 GMT

Was thinking he kept filling it out and employer not wanting to issue a legally required W2 reflecting Social Security etc. something wrong with this situation.

Just struck me as odd ?

Re: Tax Question

babbles — Sun, 29 Nov 2020 21:32:16 GMT

I am a regular W-2 employee working part time for a company that takes Social security, medicare, paid family leave, and paid medical leave insurance, completed W-4 twice and HR said I don't make enough to take federal taxes hadn't heard that one before, thought the fed would take taxes for a $30 paycheck!

I am a military retiree as well with VA disabitlity

Re: Tax Question

JVille — Sun, 29 Nov 2020 21:59:24 GMT

Ok so they DO give you a W2.... they just don't withhold Federal Taxes from your paycheck. 👍

with VA benefits hope you are getting a VA loan!!!!

Re: Tax Question

babbles — Mon, 30 Nov 2020 01:58:28 GMT

Absolutey! Buying a home now with it, it's a wonderful benefit!