Federal taxes – specifically, federal income tax, Social Security tax, and Medicare tax – provide funding for national programs, such as foreign affairs, old-age, survivor’s and disability insurance, and hospital insurance. Under federal payroll rules, employees are supposed to pay taxes by having them withheld from their earnings unless an exception applies. For example, you may have no withholding tax taken from your paycheck due to how you filled out your W-4 form for the year.
If you notice your employer doesn't take federal taxes out of your paycheck, there are some things you can do to correct the situation, if necessary.
Exemptions from Federal Income Tax
If you see that your paycheck has no withholding tax, it could be because you are exempt. If you claimed tax exemption on your W-4 form, no federal income tax is withheld from your wages. You qualify for exemption if in the previous year you had a right to a refund because you owed no federal income tax, and in the present year, you expect a refund because you do not anticipate owing any taxes.
Though Social Security and Medicare exemption are uncommon, you are excluded in certain situations, such as if you are a state or local government employee with a pension plan, or a nonresident alien with a certain type of visa.
Read More: How to Stop Federal Withholding
Completing the W-4 Form
The W-4 form (Employee's Withholding Certificate) should be filled out each time someone changes jobs or their personal circumstances change. Examples of personal circumstances that would trigger the need to complete a new W-4 form include getting married, the birth or adoption of a child, or buying a house. The employee is asked to reveal the following information:
- Whether their spouse works
- If the employee has more than one job
- Whether the employee has children or other dependents
- If the employee has income other than from employment
- Whether the employee expects to have deductions other than the standard deduction
- If the employee would like extra withholding taken from their paycheck
Step-by-step instructions and a worksheet are provided to help employees complete the W-4 form.
Read More: How to Reduce Tax Withholding
Consider a Possible Payroll Error
If you are subject to federal payroll tax withholding and it’s not occurring, it could be due to a payroll processing error. If so, inform your supervisor or payroll department of the issue. If your employer is not withholding enough taxes, it is still responsible for paying the IRS the amount owed, even if it has not finished collecting the balance from you.
Reporting and Other Considerations
If you failed to adjust your W-4 appropriately and it resulted in no federal income tax withheld from your paychecks, you will likely owe the IRS money when you file your income tax return. You might face penalties and interest as well. You can use the IRS withholding estimator which helps you to figure out if you need to give your employer a new W-4. The estimator shows you how to adjust your W-4 so you do not underpay federal income tax.
Read More: What are the Disadvantages of Withholding Taxes?
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.