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. All employees are supposed to pay them via federal withholding, unless an exception applies. 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.
You may have no federal taxes taken from your paycheck if you claimed you were tax exempt on your W-4 or if you had claimed several allowances. Payroll errors at your employer can also cause this issue.
If you see that your paycheck has no federal tax withheld, it could be because you are exempt. If you claimed tax exempt on your W-4 form, no federal income tax is withheld from your wages. You qualify for exempt 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 is 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.
Looking at W-4 Adjustments
Social Security and Medicare taxes are withheld according to a flat percentage of your wages. Therefore, as long you have earnings, some portion of your pay will go towards these taxes. Federal income tax withholding, however, depends considerably on your W-4 information, especially your filing status and allowances. Each allowance you claim gives you an amount that reduces your taxable wages. If you claim many allowances, it can result in no federal income tax withheld. If your filing status puts you in a lower tax bracket (such as head of household), it can contribute to less federal income tax withheld from your pay. Federal income tax withholding also depends on your wages; if you earnings are minimal it can result in no tax withheld.
Learning About Payroll Errors
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 superior or payroll department of the issue. If your employer is not withholding enough taxes, it is 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 when you file your tax return. You might face penalties and interest as well. You can use the IRS withholding calculator, which helps you to figure out if you need to give your employer a new W-4. The calculator shows you how to adjust your W-4 so you do not underpay federal income tax.
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.