Help understanding payroll taxes

[rutgers07]

Hey everyone. As I'm starting to take a harder look at my finances, I've started analzying my paychecks. I'm pretty confused about how payroll taxes work. As far as I understand it, I am in the 25% tax bracket, but the simple math suggests I'm losing about 32%. Here are the numbers.
Gross Year to Date = 45,610
Take Home YTD = 30,970
FICA - 3398.28
Federal W/H - 221.91
State W/H - 60.17
Miscellaneuous - 153.22
401k contributions YTD - 2421.92

I don't really have clue on how to start interpreting things. My deductions were at 0 at the start of this year, but about 2 months ago I changed that to "2." I'm also getting 6% taken out for my 401k contribution. I don't know if I should do the math subtracting out my 401k contributions which brings it to 29%. Also, to me, this may mean I'm nothing withholding enough and should expect a nice tax return. Any help? Thanks.

[fruitbowlk]

What are your Allowances?

[jIM_Ohio]

Hey everyone. As I'm starting to take a harder look at my finances, I've started analzying my paychecks. I'm pretty confused about how payroll taxes work. As far as I understand it, I am in the 25% tax bracket, but the simple math suggests I'm losing about 32%. Here are the numbers.
Gross Year to Date = 45,610
Take Home YTD = 30,970
FICA - 3398.28
Federal W/H - 221.91
State W/H - 60.17
Miscellaneuous - 153.22
401k contributions YTD - 2421.92

I don't really have clue on how to start interpreting things. My deductions were at 0 at the start of this year, but about 2 months ago I changed that to "2." I'm also getting 6% taken out for my 401k contribution. I don't know if I should do the math subtracting out my 401k contributions which brings it to 29%. Also, to me, this may mean I'm nothing withholding enough and should expect a nice tax return. Any help? Thanks.

The tax bracket you are in is decided April 15, not during payroll deductions. Payroll deductions can approximate an expected tax bracket, but your current employer does not know

1) If you have another job
2) If your spouse works
3) if you claim your kids on your tax return
4) What tax deductions you claim (like mortgage interest)

all of those affect tax bracket, but taxes withheld from check are based on allowances, not your tax return.

The tax return you file with the IRS is you personally resolving all the income (from all sources) with all the taxes you paid (from all sources) with additional tax incentives (like mortgage interest and deducting kids), and the end result of this is a tax bracket.

[rutgers07]

What are your Allowances?

It was at 0 but I changed it to 2 when I realized having a big tax refund is not actually a good hting.

[rutgers07]

The tax bracket you are in is decided April 15, not during payroll deductions. Payroll deductions can approximate an expected tax bracket, but your current employer does not know

1) If you have another job
2) If your spouse works
3) if you claim your kids on your tax return
4) What tax deductions you claim (like mortgage interest)

all of those affect tax bracket, but taxes withheld from check are based on allowances, not your tax return.

The tax return you file with the IRS is you personally resolving all the income (from all sources) with all the taxes you paid (from all sources) with additional tax incentives (like mortgage interest and deducting kids), and the end result of this is a tax bracket.

That explains a lot. I didn't realize all of that, I thought it was all automatically done based on your salary. I now have 2 allowances (I think that's right) but I haven't really compared paychecks to see what the differences have had in deductions. I'll have to check that out.

[MonkeyMama]

To clarify, FICA (social security) is 7.65%.

Gross minus 401k is basically your taxable salary. So take your total Fed w/h and divide it into that figure. Same for state.

Even if you were in the 25% tax bracket, your entire income is not taxed at 25%. You pay 10% on first few thousand dollars, then 10% on some, and 25% on the rest.

Assuming your gross income is $60k for the year:

$60,000 gross
- 3,600 401k
- 3,900 personal exemption
- 6,100 standard deduction
--------
=46,400 Taxable Income
= 7,500 Federal Taxes (see 2013 tax tables)

I assumed a lot: single, no other income, no other deductions, etc. & I am not familiar with your state.

Every exemption you take probably gives you about $1,000 back in your paycheck (given your income). So if you had a $2,000 refund last year, then taking 2 exemptions is probably fair.

[Petunia 100]

Also, not all of what you listed are payroll taxes.

Fica is a payroll tax. It does not count at all towards your income tax. Your income tax bracket does not include Fica tax.

Federal w/h is your federal income tax. You are making payments towards your 2013 federal income tax bill. You may owe more, you may owe less.

State w/h is your state income tax. You are making payments towards your 2013 state income tax bill. You may owe more, you may owe less.

Miscellaneous - no idea. Maybe a local tax, maybe a misc deduction for something you owed your employer.

401k - voluntary contributions to your retirement account. Not a tax of any kind.

[Like2Plan]

. Also, to me, this may mean I'm nothing withholding enough and should expect a nice tax return. Any help? Thanks.

Also, the IRS has a handy tool on their website for figuring out withholding amounts:
irs Withholding calculator

I like to use it from time to time to make sure we are withholding enough. You still have to make some assumptions when you put the data, but it gives you an idea.