- Passed into law in 1939 as part of Social Security legislation, the Federal Insurance Contribution Act (or "FICA," for short) mandates that employees in the United States contribute to their government-provided retirement benefits incrementally over the course of their careers. Practically speaking, FICA taxes involve two components: Social Security and Medicare. Social Security is a benefit the government pays to retired senior citizens and certain nonseniors who are disabled and unable to work. Medicare, on the other hand, is a government-provided health insurance available to Americans over the age of 65. A total of 7.65 percent of each of your paychecks goes toward your retirement, with 6.2 percent put toward Social Security and the remaining 1.45 percent paid to Medicare. As an example, if you earn $1,000 per week, you will pay $76.50 in FICA taxes--$62 to Social Security and $14.50 to Medicare.
- Before you can determine exactly how much federal tax you'll have withheld from your paycheck, you must consider what's called your "filing status"--namely, are you single or married? While there are a number of arguments to be made as to which status is more beneficial to taxpayers, they're all moot if you're married on the last day of the year for which you're filing taxes. As Blunt Money explains, "filing as single is no longer an option" at this point. On the other hand, if you are married but your spouse doesn't work, you'll file as "head of household." In addition to marital status, you need to consider how often you get paid: weekly, biweekly, bimonthly or monthly. The IRS uses different amounts to determine "tax brackets" depending on how often you get paid.
- The IRS computes your federal tax withholding based on tables it publishes every year. Once you've determined your filing status, you can determine your own withholding, keeping in mind the frequency with which you get paid. A single person who earns $1,000 per week, for example, must pay $82.35 per week in taxes, plus 25 percent of any amount over $693--in her case 25 percent of $307, or $76.75, for a total of $159.10 per week in federal withholding. If she is married, however, she'll pay $20.70 per week, plus 15 percent of any amount over $471--15 percent of $529, or $79.35, for a total of $100.35 per week in taxes. Although the married person will pay less individually, you must also consider that her husband is also paying taxes, so the couple's collective tax burden will likely be more than the single taxpayer's. If, on the other hand, only the husband or wife works, the working spouse will file as "head of household" and be subject to "single" withholding rates. Consult the Federal Income Tax Tables in the Resources section for more information pertaining to your tax situation.
- Most U.S. states impose their own income tax to supplement the federal one. Only Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming don't have a state income tax. Across the rest of nation, state income tax brackets and rates vary. Hawaii, for instance, has 12 income tax brackets, with rates that range 1.4 percent to 11 percent, as of 2010, and applicable to singles' and married couples' earnings up to $200,000. States like Illinois and Indiana, on the other hand, impose "flat-rate" taxes of 3 percent and 3.4 percent, respectively, regardless of taxpayer income. Consult the State Income Tax Rates in the Resources section for more information about your state's policies.
- Generally speaking, it is not possible to escape federal income tax withholding. According to the University of Louisville, however, you may qualify if you meet two basic criteria. First, you must not owe any federal tax for the previous year and all the tax you did have withheld came back to you in the form of an IRS refund. Additionally, your tax outlook must be similar for the coming year--in other words, you don't expect your income or marital status to change. Still, it's not entirely that simple--your yearly gross income can't exceed $850 (up to $300 of which can consist of "unearned income" such as tax dividends and trust fund interest) if you hope to evade federal taxes. Even if you meet these requirements, you lose your exemption if anyone claims you as her dependent.
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