Income Taxes Explained
When you think of taxes, what's the first thought that comes to mind? More than likely, it's the list of numbers that have been removed from your paycheck before it reaches your pocket. These federal, state and local deductions from your salary are income taxes.
Income taxes are the taxes imposed on all paychecks you receive. Depending on where you live, all or none of them may apply to you. Some cities and states don't charge income taxes. But chances are, you're part of the majority of US citizens who are required to pay all three. The amount deducted is determined by the amount that you earn. The higher your income, the higher you're taxed.
At the start of any new employment, you are required to fill out a W-4 income tax form. This form tells your employer how much should be withheld from your paycheck for federal income taxes. Questions about your other sources of income, martial status, and number of children help determine how many allowances you're entitled to. The more deductions you claim, the less that will be withheld.
Taxes on your income come from other federal sources as well, not just income taxes, and go towards funding federal programs. This system is more commonly known as FICA, or the Federal Insurance Contributions Act. What FICA means to you is this:
- 6.2% of your gross income will go to Social Security, up to $106,800
- 1.45% of your income goes to Medicare
The good news is that your employer is obligated to pay the same amount that you do.
