"Withholding" as a tax term refers specifically to the taxes your employer is supposed to take out of your paychecks. If you receive income that is not subject to withholding, or if you’re self-employed, you may need to set aside sufficient funds to pay estimated taxes. Your filing status impacts your federal income tax amount. Filing jointly as a married couple puts you in a lower income tax bracket than single status. You also qualify for more deductions and credits when you file jointly.
If you pay federal income tax via withholding, your tax percentage depends on your wages and filing status. You pay 10, 15, 25, 28, 33 or 35 percent, and possibly a flat amount, on taxable wages over a certain amount. Let’s say you earn $2,500 semi-monthly and claim two allowances and married status on your W-4 form. After pretax deductions such as 401(k) and health insurance, your taxable wages for federal income tax come to $2,240. As of 2012, the Internal Revenue Service gives $158.33 per semi-monthly allowance. Multiply $158.33 by 2 to get $316.66. Subtract $316.66 from $2,240 to get $1,923.34. As a married person filing jointly, you would pay a 15 percent tax, plus a flat amount of $72.50, on wages over $1,063.
Estimated Tax Criteria
If you’re self-employed and anticipate owing more than $1,000 when you file your tax return, you must make quarterly estimated tax payments to the IRS. Corporations that anticipate owing more than $500 must pay estimated taxes as well. You may also have to pay estimated taxes if you don’t pay enough tax through withholding or receive additional types of income such as interest, dividends, rent, alimony, awards and prizes or profit on the sale of assets.
To know how much of your pay to set aside for estimated taxes, use the worksheets in Form 1040-ES. Figure your adjusted gross income by first adding your gross income, which includes regular income, ordinary dividends, taxable interest, capital gains and taxable IRA distributions, and pensions or annuities. Then, subtract deductions and credits that you qualify for, such as student loan interest, moving expenses, IRA contributions, one-half of your Social Security tax and Medicare tax, post-tax health insurance contributions and contributions to qualified retirement plans. Use the tax table in 1040-ES that matches your filing status to arrive at your estimated tax percentage. In 2012, if your adjusted gross income ranged between $70,700 and $142,700, you'd pay a 25 percent tax plus a flat amount of $9,735 on the amount over $70,700.
At the time of publication, the Tax Policy Center says that federal tax rates are scheduled to change in 2013, with the highest tax rate of 35 percent rising to 39.6 percent. The 33 percent tax rate is slated to increase to 36 percent for married-joint filers with an adjusted gross income of more than $250,000.
State Income Tax
If you must pay state income tax, consult the state revenue agency for its rules on paying the tax through withholding or estimated taxes. The state may use a standard income tax percentage, such as Pennsylvania’s 3.07 percent as of 2013; or it may use a system similar to federal income tax, where your filing status plays a key role in your tax percentage.
- TurboTax: Married Filing Jointly vs. Married Filing Separately
- IRS.gov: Circular E, The Employer's Tax Guide
- U.S. Small Business Administration: How to Calculate and Make Estimated Tax Payments
- IRS.gov: Form 1040-ES
- Pennsylvania Department of Revenue: What Is the Personal Income Tax Rate for Calendar Year 2013?
- IRS.gov: Estimated Taxes
- Tax Policy Center: Allow Top Two Rates to Rise to 36% and 39.6% After 2012
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.