A Guide to Local, State & Federal Income Tax Withholding

February 15, 2015 : Alison Flores

Editor’s Note: It’s easy to think about taxes now, when the filing deadline is staring you in the face, but did you know there is a tax form you can change any time of year? They are state and federal income tax withholdings – and the amount withheld is determined by a W-4. Learn more about what that means here!

You check your paystub and you see there are federal income taxes, social security and Medicare taxes, and maybe even state and local taxes withheld from your paycheck. Why are there so many different federal withholdings and why are they sometimes different from paycheck to paycheck? Here’s a breakdown of the different taxes and why they sometimes change.

W-4-square

Federal Income Tax Withholding

(FITW, FT, or Fed Tax)

Your employer will use information you provided on Form W-4 as well as the amount of your taxable income and how frequently you are paid in order to determine how much FITW to withhold from each paycheck.

If you earn more than usual during a pay period (such as work overtime or receive a bonus), the FITW will increase.

If you earn less (such as work fewer hours or increase contributions to your 401k), the FITW will decrease.

Your employer sends the FITW to the IRS on your behalf. Your goal is to have at least enough FITW during the year to cover your expected federal income tax liability.

The total FITW for the year will be reported on your Form W-2 in box 2. If you have too little FITW, it’s time to adjust your withholding.

Social Security and Medicare Taxes

(FICA, OASDI, HI, SS, SSWT, Med, or MWT)

Your employer will withhold these employment taxes from your pay at a fixed amount; 6.2% for social security and 1.45% for Medicare. If you earn more, these withholdings will increase; if you earn less, they will decrease.

Also, if you earn more than $200,000 from any one employer, an additional Medicare tax of .09% applies to the excess.

Neither you nor your employer can change the employment tax rates. Social security and Medicare taxes rarely impact your federal income tax liability or refund. If you had multiple employers and income above the wage base, you may have had too much in Social Security taxes withheld. In that case, you can request a refund on your tax return.

State Income Tax Withholding

(SIT or SITW)

If your state has an income tax, you will probably have state income taxes withheld from your paycheck. Your employer will use information provided on the state version of Form W-4 and your income to determine how much to withhold.

Like FITW, your goal is to have enough SITW during the year to cover your expected state income tax liability.

If you owe taxes to more than one state (for instance, if you work in a different state from your resident state) you may want to request that your employer withhold taxes for the other state or withhold additional taxes from your work state to make up the difference.

Local Income Tax Withholding

If your city or local community has an income tax, your employer may withhold local taxes. Rates and rules vary depending on location.

Knowing why your employer withholds taxes can help you plan ahead and avoid surprises when you file your taxes. Check your paystub and use a W-4 Calculator to find out if you need to make any changes to your federal income tax withholding this year. If you’re expecting a big refund this year, you may want to adjust your withholding to have more take-home pay each pay period.

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Alison Flores

Alison Flores

The Tax Institute, H&R Block

Alison Flores, JD, is a principal tax research analyst at The Tax Institute. Alison specializes in the Patient Protection and Affordable Care Act, same-sex marriage, tax preparer regulation, and individual income tax issues.