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What Percentage of my Paycheck is Withheld for Federal Tax?

One of the most common questions the majority of new employees ask is, “what percentage of my paycheck is withheld for federal tax?” With taxes lurking around, everybody is interested to know how much money they are actually making and what amount they will be left with after paying all the taxes. 

These taxes, including the federal taxes, significantly impact your take-home pay. As the owner of a small-scale business, your employees can ask you this question, or you can ask yourself it as well. Moreover, if you are the person who takes care of payrolls on your own, it becomes more essential to find out the answer. 

We have put up this guide for your assistance. You will find out everything you need to know regarding what federal income taxes are, how you can provide the answer to this question for your employee’s and your own sake, and how you can handle the necessary tax and payroll calculations. 

What is a Federal Tax?

It is a category of tax that is withheld from the paychecks of employees. Together, these taxes can be categorized into two separate groups: Federal Insurance Contributions Act (FICA) and Federal Income Tax (FIT). There is no one-fit-for-all method to decide what amount of federal tax will be deducted from employees’ paychecks. 

The amount or percentage of federal tax that is withheld from the salary is based on numerous factors. Still, you can better understand how these taxes work through the use of calculators and find out the final amount you will be taking home.

Factors that determine Federal Income Tax (FIT)

There are a few factors that you will need to understand when it comes to FIT:

Filing Status

It is a significant factor in understanding the FIT. The different types of filing statuses are:

  • Single

This can be used if you are believed to be unmarried on the year’s last day before the New Year commences. You can also be qualified for Head of Households’ filing status if you are single and claim a dependent. 

  • The Head of Household

If you are not married, have a qualifying individual, and pay at least 50% or more of the costs of keeping or maintaining a home, you are eligible for this filing status. There are strict criteria to qualify as the head of household. Only a few close-related dependents are eligible to be head of household filers.

  • Married filing jointly

Married couples may either file separately or jointly with their spouse. Combined tax returns will combine the deductions and income of both partners. Both partners need to mutually agree to file a joint tax return for this, followed by signing the return before filing. 

  • Married filing individually

Married individuals who file for returns separately will receive the lowest tax benefits but understand individual tax liabilities. You should consult a tax professional or an accountant to help you decide which married filing status can be the most beneficial for you, keeping in mind your financial situation. 

  • Qualifying widower/Widow with a dependent child

If you are unmarried because your partner passed away sometime earlier in this year, you are still eligible to file jointly or individually as a couple for the particular year, despite having a dependent.

After the first year of your spouse’s death, if you are unmarried and have a child, you can file for a qualifying widower/widow’s status with a dependent child. 

You can claim this status for 2 years. After this, your filing status will have to be altered to Head of Household or single if you still remain unmarried, based on whether you continue claiming a dependent child. If you marry again after these 2 years, you will need to file as either one of the married filing statuses. 

Amount earned during the compensation period

During their pay period, the employees’ earnings will determine their income brackets and the related percentage of federal taxes when viewed with their respective filing statuses.

The individual federal tax comprises 7 tax rates that increase with the income brackets. Each of these rates applies specifically to income within a particular range (tax bracket). 

Contributions to retirement accounts

Your federal tax can also be affected if you contribute a certain amount of your income to a tax-privileged retirement savings account. Traditional IRAs and 401k plans are some of the most suitable programs. 

When an employee contributes to these plans, they are deemed pre-tax deductions. Hence, they will be exempted from paying federal taxes during the period they contribute to these accounts. However, there is a limitation to the amounts you can contribute as pre-tax payments. The limit for 2021 is $19,500.

 ➡LEARN MORE: How to find out if someone filed taxes in my name?

2021 Federal income rates and tax brackets

Tax return and pen

In 2021, the earning limits for all files and tax brackets have been readjusted, keeping in mind the inflation. At present, the highest marginal income tax rate is 37%.

This means single tax filers and heads of households will have to pay a taxable amount of up to $523,600 and more, while married couples who file jointly will have to pay up to $628,300 and more. 

Here are the rates for 2021 federal income rates and tax brackets for single individuals, heads of households, and married couples filing jointly.

For single individuals

  • 10% – Up to $9,950
  • 12% – $9,951 to $40,525
  • 22% – $40,526 to $86,375
  • 24% – $86,376 to $164,925
  • 32% – $164,926 to $209,425
  • 35% – $209,426 to $523,600
  • 37% – $523,601 or more

For Heads of Households

  • 10% – Up to $14,200
  • 12% – $14,201 to $54,200
  • 22% – $54,201 to $86,350
  • 24% – $86,351 to $164,900
  • 32% – $164,901 to $209,400
  • 35% – $209,401 to $523,600
  • 37% – $523,601 or more

For married individuals jointly filing returns

  • 10% – Up to $19,900
  • 12% – $19,901 to $81,050
  • 22% – $81,051 to $172,750
  • 24% – $172,501 to $329,850
  • 32% – $329,851 to $418,850
  • 35% – $418,851 to $628,300
  • 37% – $628,301 or more

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