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Tax Question

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Established Contributor

Tax 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??

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Established Contributor

Re: Tax Question

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. 

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Message 2 of 16
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Community Leader
Super Contributor

Re: Tax Question

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do have a FT job did you mention your other job(s) on your W-4 so your employer can calculate the proper taxes to be withdrawn?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

2020 is like a steak cooked well-done that needs to get out of my face. - @imapharmacygirl
Message 3 of 16
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Established Contributor

Re: Tax Question


@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. 

Starting Score: EQ:608, EX:617, TU:625
Score 10/2018: EQ:669, EX:686, TU:668
Score 11/17/2018: EQ:682, EX:681, TU:683
Current Score 3/11/2020: EQ:695, EX:703, TU:720
12/24/2018 -- EQ Beacon 5.0: 678, EX Fico II: 690, TU Fico Classic 04: 716

Goal Score: 740+


Take the myFICO Fitness Challenge

Discover IT $1000Cabelas Clasic $1000Coscto Anywhere Signature Visa -Citi- $7200ExxonMobil Smartcard -Citi- $2500Playstation Visa (Comenity) $1950QuickSilver One $2200Walmart $6000Wells Fargo Platinum Visa $3000

Member of the Synchrony Bank giveth then Taketh away April 2020 Club! $86,900 in available credit gone without warning.

Newest Account July 8, 2020 -- Last HP October 24, 2020 -- Gardening Goal:
August 2022 and reach 0/24
Message 4 of 16
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Moderator

Re: Tax Question

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.

Message 5 of 16
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Established Contributor

Re: Tax Question

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

Message 6 of 16
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Established Contributor

Re: Tax Question


@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).

Starting Score: EQ:608, EX:617, TU:625
Score 10/2018: EQ:669, EX:686, TU:668
Score 11/17/2018: EQ:682, EX:681, TU:683
Current Score 3/11/2020: EQ:695, EX:703, TU:720
12/24/2018 -- EQ Beacon 5.0: 678, EX Fico II: 690, TU Fico Classic 04: 716

Goal Score: 740+


Take the myFICO Fitness Challenge

Discover IT $1000Cabelas Clasic $1000Coscto Anywhere Signature Visa -Citi- $7200ExxonMobil Smartcard -Citi- $2500Playstation Visa (Comenity) $1950QuickSilver One $2200Walmart $6000Wells Fargo Platinum Visa $3000

Member of the Synchrony Bank giveth then Taketh away April 2020 Club! $86,900 in available credit gone without warning.

Newest Account July 8, 2020 -- Last HP October 24, 2020 -- Gardening Goal:
August 2022 and reach 0/24
Message 7 of 16
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Established Contributor

Re: Tax Question

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

Message 8 of 16
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Valued Contributor

Re: Tax Question

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.

Message 9 of 16
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Moderator Emeritus

Re: Tax Question

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.

 

 




        
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