Just received your paycheck and found that no withholding federal income tax was deducted from your pay?
Well, the first reaction of anyone seeing their paycheck showing an amount higher than normal will be pleasant. However, you will surely wonder why they didn’t the employer deduct your federal income tax. Was it an intentional act or just an error by the payroll guy?
We have got you covered if you didn’t expect this to happen and don’t know any absolute reason why your employer would do that. We will list all the possible reasons why no federal income tax was withheld from your paycheck. We will also try to answer most asked questions about federal taxes and exemptions.
So let’s get into it without a further ado.
What Are Federal Income Taxes?
The Federal Income Tax is applicable to all the annual earnings of businesses, individuals, and legal entities established under the country’s law. Wages, salaries, capital gains, business incomes, tips, bonuses, unemployment benefits, etc., are subject to a federal income tax.
Federal Income Tax is applicable by Internal Revenue Service(IRS), and the employers are supposed to deduct the tax from the monthly paycheck and then pay it to the IRS. You pay the federal tax to the federal government instead of the state government.
Governments apply federal income tax for government expenses ranging from development projects to infrastructure improvement and education to public health and safety.
What Are Withheld Taxes?
Withholding taxes are the tax deducted at the source. Withholding taxes are deducted by the employer from the monthly paycheck of the employees and directly paid to the federal government. They can also be called advanced tax payments, and employers deduct the tax from the employees’ paycheck. The federal income taxes are also withheld from a paycheck or income.
Why Was No Federal Income Tax Withheld From My Paycheck?
There can be many reasons why no federal income tax is withheld from your paycheck. The federal taxes deducted from your salary are usually federal income tax, social security tax, and Medicare tax. However, if you see a federal income tax not deducted from your paycheck, social security tax, and Medicare tax will probably still be deducted.
The most probable reasons why your federal income tax was not deducted from your paycheck can be any of the following:
- Your income is too low for a deduction to be applied.
- You are exempted from the federal income taxes as claimed by you.
- Your home state and working state are different, and it can also be one of the reasons why no tax was deducted from your monthly paycheck.
- Some states have the law to not withhold the federal income tax from the income of individuals. If you’re living in one of those states, no tax will be deducted from your paycheck.
- A reason for no income tax deduction from your paycheck can be the error at the end of your employer.
We will discuss these reasons in detail and suggest what you should do in each of the cases. So let’s get into it.
You’re Not Earning Enough Money
The most probable reason why no amount was withheld in lieu of federal income tax from your paycheck is that your income doesn’t exceed the minimum taxable amount. According to the recent changes in the W-4 form(Employee Withholding Certificate), employees having too low income won’t be charged the withholding tax on the paycheck.
However, it’s important to know the process of calculating the withholding tax. The most important factors considered are:
- Rate of payments
- Payment frequency(weekly, bi-monthly, monthly, etc.)
- Number of dollars for the dependants
- Filing status
All of these factors are considered and accounted for when checking an individual’s eligibility for withholding tax deduction. To add more context, let’s understand it with an example.
An employee receives weekly paychecks from his employers. The value of each paycheck is $1500. There is another individual who gets a monthly paycheck from his employer, and the amount is $1500. The calculation of the amount to be withheld for an employee getting paid weekly will differ from the one getting a monthly paycheck. Similarly, the way federal income taxes are withheld will be different for a married person and a single person.
You’ve Claimed Exemption From Federal Taxes
The second possibility why no income tax was deducted from your paycheck is your claimed exemption from withheld tax. You can check your employer’s tax settings & tax exemption status to check if it’s one of the reasons why no amount was deducted from your paycheck.
Therefore, it’s important to consider if you’re exempt from federal income tax withheld, it might not necessarily mean that you are also exempt from other taxable income or wages. Make sure to go through your W-2 to see all of your taxable wages.
You Are Working In A Different State Than Your Home State
The calculation and deduction of income taxes withheld work differently if the employee has a resident status of one state and works in another state. In that case, resident/non-resident taxation rules are applied for tax deduction purposes.
The following states have special regulations and rules for resident employees who have relocated to another state for work purposes:
Resident employees working for a non-resident employer are not subject to Alabama withholding tax. However, all wages are applicable for taxation at the end of the tax year.
Residents working in another state shall pay the Arkansas withholding if the state where they work does not have any income tax laws.
Residents working in another state shall not be charged Colorado withholding if they’re already charged in the state where they work.
Irrespective of working state income tax laws, the residents working in another state are exempt from the Illinois withholding.
Residents working in another state shall not be charged Georgia withholding if they’re already charged in the state where they work.
If the tax liability to Minnesota state is less than the tax withheld in the working state, no tax is charged by Minnesota. However, the difference between withheld tax and tax liability in Minnesota is withheld from residents’ wages in another case.
Residents working in another state shall not be charged Mississippi withholding if they’re already charged in the state where they work.
If the Missouri tax rate is higher than that of the state where the resident is working, the residents of Missouri will be charged with employee withholding.
Irrespective of working state income tax laws, the residents working in another state are exempt from Montana’s withholding.
There is no exemption for Nebraska residents working in another state. However, the exemption up to the amount withheld in employment state will be subtracted from Nebraska tax liability.
Residents working in another state shall not be charged North Dakota withholding if they’re already charged in the state where they work.
Residents working in another state shall not be charged Ohio withholding if they’re already charged in the state where they work.
Residents working in another state shall not be charged Oklahoma withholding if they’re already charged in the state where they work.
Residents are only charged withholding tax if the employer is located in Oregon. Otherwise, no tax is withheld by the Oregon state.
Residents working in another state shall not be charged Pennsylvania withholding if they’re already charged in the state where they work.
Utah, Virginia, and Idaho are also subject to some withholding tax exemptions for the residents working in other states.
You’re Living In A State With No Federal Tax Withheld
If you’re living in one of the states in the U.S where no Federal Tax is withheld from employees’ paychecks, you will be lucky to receive your paycheck in full. However, the taxable wages are taxed at the end of the year. The states where no income tax withholding requirements exist are:
- New Hampshire
- South Dakota
It Can Just Be A Payroll Error
If all of the points discussed above don’t hold true for your case, but you’re still not charged any withholding tax, you need to check with your employer.
It can be just an error on the end of your employer due to which no tax was withheld from your paycheck. It can be due to an error in the W-2 form by your employer, or it can be an unintended mistake. Therefore, you should check with your employer and make sure that things are corrected at their end.
We hope that mystery of the federal income tax not being deducted from your paychecks will have been solved by now. It’s important to make sure that your taxes are withheld according to the state and federal laws.
Don’t be too happy if no tax is deducted because you owe that money to your government. The taxes not deducted will be recorded as unpaid taxes in the records of the state.