Employer not withholding federal taxes... why?

Submitted by averie_eve t3_ygjt6a in personalfinance

Some background.... I had twins in October 2021. I had stopped working at my previous job September 2021. Full-time stay at home mom until I found a new, remote job in July 2022. Started August 1st, 2022 and have been working there, full time, ever since. So technically, I had no income earned from an employer from September 2021-July 2022.

I filled out my W4 when I started. I normally file head of household, I claim my kids as dependents. (My oldest child, his dad and I alternate years for claiming him, per our court ordered support agreement- but I do claim my twins.) I'm looking at my electronic paystubs. They have been taking out state taxes, Medicare, and Social Security. But I see no federal taxes withheld. I don't make much. $14 an hour, paid biweekly. So my gross YTD earnings right now are somewhere around $6,300 considering I just started in August. My gross annual YTD if I worked a full year would be somewhere around $29,120.

I don't understand why federal taxes are not being withheld. I know I can ask HR. But I'm thinking it has to do with the fact that I've only technically made $6,300 so far this year- then factoring in my dependents.. is it because I just haven't made enough this year for them to start withholding? Does that make sense at all? Just wondering if that could be the reason, before I go to HR. Thanks in advance.

22

Comments

You must log in or register to comment.

Its-a-write-off t1_iu8uh75 wrote

You have no federal tax liability and will get a tax refund even with 0 withheld.

So it is correct to withhold 0 federal income tax until you make over 1k a week.

47

averie_eve OP t1_iu98run wrote

I tried the IRS W4 withholding calculator because I thought I must have done something wrong on my W4. Followed the instructions exactly, inputting each thing as accurately as possible, and it ended up telling me I'll get a $7,000ish refund with $0 federal tax withheld because I've "already withheld an amount significantly more than my anticipated tax obligation." Nothing was withheld for federal though. Ugh, I just want to make sure I understand this correctly lol. Appreciate everyone's patience with me! I do feel like I understand a bit more now than I did before.

4

Its-a-write-off t1_iu9afff wrote

Yes. It is correct to have no withholding. It is also well within reason to expect a 7k refund with 0 withholding. You get the child tax credits, and EIC tax credit. Which are pay outs to you from the government.

There is absolutely no reason you should be withholding federal income tax at your income.

23

DonaldKey t1_iu9fn4x wrote

Each child is now a $3k credit

1

8yseven t1_iu9vyki wrote

$2k each for 2022. It changed back after last year.

8

InkognytoK t1_iuc73k4 wrote

I have dual income (married) no kids. I'm paying for your credits, enjoy. The Government views raising new tax payers as a bonus, future income. Others get taxed you get breaks.

−2

wijwijwij t1_iu8vit5 wrote

The withholding system does annualize your income, so if it "thinks" your annual income is 29120, it'll use the Head of Household standard deduction amount to figure your taxable income. But then if you said you have two or three kids that you'll be claiming, perhaps you entered a $ amount related to tax credit for qualifying dependent children. Your tax is less than the sum of those tax credits, so your actual tax liability is 0, so no withholding is happening, and since the child tax credit is a refundable credit, you may actually receive money.

13

DonaldKey t1_iu8uqhw wrote

Because you won’t owe taxes at the end of the year so none is taken out

10

bk15dcx t1_iu8w12r wrote

You are exempt. You don't make enough money and have enough dependents.

8

averie_eve OP t1_iu8wfls wrote

So basically it's because I haven't made much, and I claim dependents, and file head of household? Once I make over a certain amount, they will start withholding federal taxes?

I'm just confused because each job I've had prior to this withheld federal starting with my first paycheck. I made even less at those jobs than I do now. However, I wasn't filing head of household, or claiming dependents- eventually started claiming my oldest, still had federal taxes withheld, but during that time I was consistently working/employed, and filing single. So I think this makes sense to me, just want to make sure I'm understanding correctly .

3

MarcableFluke t1_iu8ymlq wrote

>Once I make over a certain amount, they will start withholding federal taxes?

No. Withholdings are spread out evenly over the year. If they aren't taking any out now, they won't be taking any out unless you change your W-4 or get a big raise. $14 per hour full time is less than $30k a year. Someone making $30k per year with two kids doesn't pay federal income tax. So nothing is withheld for it.

A single person making $30k a year with no kids does pay income tax, which is why there were withholdings from your previous job.

15

Bad_DNA t1_iu8zcw5 wrote

Yes -- once you make above the taxable threshold, the system will withhold. Your prior employers may have calculated a bit differently due to your other filing statuses. Note: withholding and getting it all back in April is a BAD idea -- it means you gave the government an interest-free loan on that money where YOU could have been earning interest. Always try to zero out on the balance between sufficient withholding to pay the taxes you'll have to pay and not over-paying. Good for you for checking on it so you don't get clobbered with an unexpected tax bill in April. Here's the other side: Getting a refund isn't a good thing -- it means someone didn't do their math.

1

rnelsonee t1_iu94co1 wrote

>Yes -- once you make above the taxable threshold, the system will withhold.

OP seems to be asking once they make a certain amount in a year, will withholding start. The answer is no. Withholding is based on annualized income, so it depends on the paycheck amount × the number of pay periods. In other words, it's based on the pay rate, not the amount earned so far (otherwise, everyone would get tax free paychecks in January thanks to the standard deduction).

Like HoH with 3 kids means you need $75k to have tax liability. If OP makes say , $3,000 per biweekly paycheck (>$75k) they will have withholding from the first paycheck (as opposed to $0 withheld and then a big chunk on their last paycheck).

5

Bad_DNA t1_iuag5te wrote

Thanks -- yes. I like your wording - much more accurate. Mine was confusing.

1

rnelsonee t1_iu94zqd wrote

There's no tax for Head of Household filers with 2 kids ($4,000 in Step 3 on your W-4) until your paychecks are about $55,000/(number of pay periods). With 3 kids ($6,000 in Step 3) it's $72,000/(number of pay periods). So until you make that much in a paycheck, there's no withholding as your tax for the year will be $0.

Your YTD doesn't matter - withholding looks at your annualized income every paycheck.

3

averie_eve OP t1_iu97f51 wrote

So if I'm paid an hourly rate of $14, and I always work 40 hours per week, paid biweekly, and I'm claiming 2 kids ($4,000 on Step 3 on my W-4).. I'm never actually going to have a paycheck that exceeds $55,000/(number of pay periods). My paycheck is never going to exceed that number. So I literally will just never have federal taxes withheld? And I won't be penalized come tax time?

I think I understand the reasoning, it's just so weird to me lol.

3

rnelsonee t1_iu985e3 wrote

You got it. Say you make $14×40×52 = $29,120 for the year. Subtract $19,400 standard deduction. 10% of the $9,720 left is $972. That's your tax before credits.

Now subtract credits; it's not $4,000 since your lower income lowers it, but you get Earned Income Tax Credit with that low income, so I'm computing $6,700 "refund" even though you paid $0.

5

zffch t1_iuagq80 wrote

You don't have any tax withheld because you don't owe any, you're not close to owing any, and in fact the government is going to give you thousands of dollars as a tax "refund" when you file next year even though you didn't pay anything to be refunded.

You have to understand that the country's biggest welfare programs are built straight into the tax code. Having children, and low income, entitles you to tax credits like the child tax credit and the earned income credit. $2,000 per child for the CTC, and potentially over $6,000 for the EIC. This more than offsets any taxes you'd otherwise owe on your income, and the remainder will be paid out to you as cash.

You're in the same category as 40% of the country.

3

averie_eve OP t1_iubo81d wrote

I hear ya. I'm not trying to say that I feel entitled to a big refund like that. I understand how it works now and I appreciate everyone that answered. I think I was mostly confused/figured something was wrong because when my oldest was younger, maybe 3-4 years ago, there were a couple years that I still worked at my previous job ($12 an hour.. I know, but it was a small business, wonderful people who were so good to me in so many other ways, right across the street from my son's school and down the street from my house.. and I was really just working to supplement my ex's income, he made more) where I actually claimed my son, filed single, still had federal taxes withheld, only worked 40 hours a week, sometimes less. Making $12 an hour. So I was confused, now that I'm making slightly more money. (I get that I have more kids now, and my filing status has changed, still don't make a ton, and that's why federal is not being withheld.)

But back to what I was saying, I don't feel entitled to a giant refund or anything just for having kids. I would've loved to get a higher paying job and had federal withheld. This offer just happened to come first and I really needed to get back to work lol. I fully expected to see a higher amount taken out for federal than what I'm used to, since I'm making slightly more now. I understand that is not going to be the case.

Thank you though everyone, this was actually really informative. Learned something new today. 🙂

2

Restil t1_iua6zi7 wrote

Your withholding is based on how much you earn each pay period, not on how much you earn each year (although it should add up to the same unless your income varies wildly. I've done some (very) hasty back of the envelope calculations and made a lot of wild assumptions on your marital status and # of children you're claiming, but there should be absolutely no withholding until your check gross income is $1336. If you have medical benefits, non-roth 401K, or other taxes that are deductible from the federal, then that amount will go higher.

1

peter303_ t1_iuagx50 wrote

The default calculators dont know about other jobs at the beginning of year or simultaneously. Then its your job to pay tax shortages to IRS each quarter or risk a modest penalty. The penalty calculation is triggered when your taxes (including FICA) is more than $1000 short when filing taxes.

1