Federal taxes – specifically, federal income tax, Social Security tax, and Medicare tax – provide funding for national programs, such as foreign affairs, old-age, survivor’s and disability insurance, and hospital insurance. Under federal payroll rules, employees are supposed to pay taxes by having them withheld from their earnings unless an exception applies. For example, you may have no withholding tax taken from your paycheck due to how you filled out your W-4 form for the year.
If you notice your employer doesn't take federal taxes out of your paycheck, there are some things you can do to correct the situation, if necessary.
Exemptions from Federal Income Tax
If you see that your paycheck has no withholding tax, it could be because you are exempt. If you claimed tax exemption on your W-4 form, no federal income tax is withheld from your wages. You qualify for exemption if in the previous year you had a right to a refund because you owed no federal income tax, and in the present year, you expect a refund because you do not anticipate owing any taxes.
Though Social Security and Medicare exemption are uncommon, you are excluded in certain situations, such as if you are a state or local government employee with a pension plan, or a nonresident alien with a certain type of visa.
Completing the W-4 Form
The W-4 form (Employee's Withholding Certificate) should be filled out each time someone changes jobs or their personal circumstances change. Examples of personal circumstances that would trigger the need to complete a new W-4 form include getting married, the birth or adoption of a child, or buying a house. The employee is asked to reveal the following information:
- Whether their spouse works
- If the employee has more than one job
- Whether the employee has children or other dependents
- If the employee has income other than from employment
- Whether the employee expects to have deductions other than the standard deduction
- If the employee would like extra withholding taken from their paycheck
Step-by-step instructions and a worksheet are provided to help employees complete the W-4 form.
Consider a Possible Payroll Error
If you are subject to federal payroll tax withholding and it’s not occurring, it could be due to a payroll processing error. If so, inform your supervisor or payroll department of the issue. If your employer is not withholding enough taxes, it is still responsible for paying the IRS the amount owed, even if it has not finished collecting the balance from you.
Reporting and Other Considerations
If you failed to adjust your W-4 appropriately and it resulted in no federal income tax withheld from your paychecks, you will likely owe the IRS money when you file your income tax return. You might face penalties and interest as well. You can use the IRS withholding estimator which helps you to figure out if you need to give your employer a new W-4. The estimator shows you how to adjust your W-4 so you do not underpay federal income tax.
The following was sent from HIP regarding the federal tax update effective with the 3/4/22 pay date: Subject: 2022 Tax Update Effective for the 3/4/22 Paychecks The 2022 tax update was applied in HIP and
took effect for the March 4, 2022 paychecks for all employees. As part of this update, the tax brackets increased, causing employees to potentially fall into lower tax brackets. The tax percentages did not change. As a result, employees may notice less federal taxes withheld from their March 4, 2022 paychecks compared to their prior paychecks. To assist employees in calculating their new federal taxes withheld due to this update, they can complete Worksheet 1A on page 8 of the attached IRS Publication 15-T: Federal Income Tax Withholding Methods for 2022 and use the tables on page 10 to fill out the worksheet. Please share this information with your team and department’s employees. Thank you! UHMBF Web Admin
Do yourself a favor: Look at your last paycheck and see how much federal income tax has been withheld from your wages so far this year. If you've had too much or too little withheld, there's still time to change your tax withholding for the rest of the year (and beyond). But, since you probably only have a couple of pay periods left this year, you need to act as soon as possible to have an impact on your overall 2022 withholding.
Making a change can put more money in your pocket now…or shield you from an IRS penalty later. The goal is to have your annual tax withholding be as close to your overall tax liability for the year. Think like Goldilocks – you want your tax withholding to be "just right."
If you have too much tax withheld during the year, your take-home pay isn't as high as it could be and you're effectively giving Uncle Sam an interest-free loan each pay period (you won't get paid back until you get your next tax refund). Reducing your tax withholding in this case will immediately boost your paycheck (it's like giving yourself a raise). And, yes, next year's tax refund will be smaller…but that just means you're not letting the government hold on to and use your money for a few months (again, without paying interest).
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On the other hand, if your employer doesn't withhold at least (1) 90% of the income tax you expect to owe for 2022, or (2) 100% of the tax you paid for 2021 (110% if your 2021 adjusted gross income was more than $150,000), you could be hit with an underpayment penalty when you file your federal tax return next April. Increasing your tax withholding now can help reduce or completely avoid this penalty. It can also lower or prevent a tax bill when you file your federal tax return next year.
File a New W-4 Form to Change Your Tax Withholding
There are many reasons why your tax withholding could be a bit off. Common causes include a marriage, divorce, birth of a child, or home purchase during the year. If it looks like your 2022 tax withholding is going to be too high or too low because of one of these or some other reason, you can submit a new Form W-4 (opens in new tab) now to increase or decrease your withholding for the rest of the year. Give the new form to your employer and they'll take it from there (check with your HR department to find out exactly who you should send the form to). Your employer must implement any change by the start of the first payroll period ending on or after the 30th day after you submit a new W-4 form for this year.
Although there are five "steps" on the W-4 form, only Step 1 (name, address, Social Security number and filing status) and Step 5 (sign and date) are required for everyone. You only have to complete Steps 2 to 4 if they apply to you (e.g., you have more than one job, a spouse that works, dependents or other adjustments). Completing all relevant steps will bring your tax withholding closer to your tax liability, which (again) is the goal.
If you just want to increase your withholding, one easy way to do this is to specify an extra amount you'd like to have withheld from your paycheck on Line 4(c) of the W-4 form.
IRS's Withholding Tax Calculator
To help you determine if and/or how much to adjust your 2022 withholding, use the IRS's Tax Withholding Estimator (opens in new tab) as soon as you can. Have your most recent pay stub and a copy of your 2021 tax return handy to help estimate your 2022 income. Again, you must act quickly, since we're almost to the end of the year.
We also recommend using the tax withholding calculator early in 2023 to see if additional adjustments are beneficial going forward. In fact, it's a good idea to check your withholding every year. And the earlier in the year you do it – and make any necessary changes – the better. That way your tax withholding will be more even and accurate throughout the year.
But remember that you aren't required to submit a new W-4 form to your employer unless you're starting a new job. If your company doesn't receive a new form from you, it will just continue to withhold taxes based on the most recent W-4 it has on file for you.
Rocky is a Senior Tax Editor for Kiplinger with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, he worked for Wolters Kluwer Tax & Accounting and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky has a law degree from the University of Connecticut and a B.A. in History from Salisbury University.