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I'm for the first time making a pretty large sum of money that puts some of my income in the 24% federal tax bracket (though my effective tax rate- fica/fed/state is around 30%) I just got my first paycheck and noticed that the total withholding amount is only ~13%.

Is this because my income so far is only the in the first tax bracket? Or, is it my responsibility to save and pay the additional taxable amount above 13% at the end of the year?

I'm in California and I filled out state and federal withholding paperwork.

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  • 13% of what number, remember benefits and such come off before taxes are calculated? And is it fair to assume that you know the rates are marginal, 24% only applies to the earnings above $84k.
    – quid
    Commented May 20, 2019 at 22:22
  • @quid The first paycheck amount was for 1.5 days of work before payday, I was paid $733 of $844, $112 went to various taxes - and yes! Aware of marginal/effective difference
    – unicornication
    Commented May 20, 2019 at 22:25
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    As an adjunct to the answers here, for detailed information and tables on how employers compute withholding, see section 17 of IRS Circular E (irs.gov/pub/irs-pdf/p15.pdf).
    – prl
    Commented May 21, 2019 at 4:10

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First paychecks are tough because most payroll systems I've encountered use some prorating calculation to estimate an annual income. Your payroll system probably assumed that's your pay for 2 weeks of work then estimated that your annual income will only be about $20,000 ($844 * 24 pay periods) and withheld accordingly.

I have never seen or heard of a payroll system in the US that incrementally increases withholdings through the year to specifically account for incremental entry in to the marginal rates. The ones I've encountered all estimate annual income based on the check amount times a rate of pay; weekly, bi-weekly, semi-monthly, monthly, quarterly, etc. then use your filed W9 information to estimate your basic deductions.

The ultimate answer to your question is, your employer will withhold generally a correct enough amount that you do not need to pay your own estimates; when you file your tax return in 2020 you will then calculate your total income and tax liability for the year and either receive a nominal refund or owe some additional amount.

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  • Apologies that $844 number was my pay for 1.5 days worth of work, two weeks is ~$5,000 - but okay awesome! Thats exactly what I was looking for :-) thank you!
    – unicornication
    Commented May 20, 2019 at 22:31
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    I understand. The payroll system likely takes any pay that went out during that payroll period as accounting for the regular payroll cycle amount of time; which is likely two weeks.
    – quid
    Commented May 20, 2019 at 22:32
  • oh! Understood! So the payroll system likely assumed a tax rate based upon the two week estimate of my annual income, and will likely do the correct job later on as income rises to normal level! Thank you so much
    – unicornication
    Commented May 20, 2019 at 22:34
  • Correct, your next check will likely be much more accurate.
    – quid
    Commented May 20, 2019 at 22:37
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    There are 26 two-week periods in a year (and one or two days of another). There are 24 half-month periods.
    – Brythan
    Commented May 20, 2019 at 22:42
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You are not "in" the 24% tax bracket. Some (not all) of your income is. The first $12,000 of income is taxed at 0% due to the personal exemption. The next $9700 is taxed at 10%. Then $29,775 at 12%. Then $44,725 at 22%. Only then are you paying 24%. That gives a total rate for the first $84,200 of 14.95%.

Another issue is that you are only starting work in the middle of the year. So while your full year income might be more than $84,200, the actual amount that you will be paid this year may not be. So even if your full year salary is (e.g.) $90,000, you might only make $60,000 this year.

If you expect to make a lot more than $84,200 even in the partial year, then I would expect future paychecks to withhold more, starting with the second one.

You are responsible for the correct amount, but at least wait for the second paycheck before worrying too much. Assuming you filled out your withholding correctly, they should withhold a reasonably correct amount. I.e. close enough that you won't owe a penalty at the end of the year.

Note also that state and payroll taxes would be in addition to these numbers. So your 13% might jump to 25% or 30% next time, even if your marginal rate is only 24%.

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  • Apologies for poor communication, yes I'm aware of the effective/marginal information, I'm just wondering whether employers will withhold all these amounts, e.g. When the total income I have accrued exceeds $84k in a given month, will my employer continue to withhold only ~13%, or will they withhold the correct 22/24% thereafter?
    – unicornication
    Commented May 20, 2019 at 22:28
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One gotcha is that when switching jobs in the middle of the year, (or when working two jobs, or otherwise having a second source of income) your employer only knows about the money you earn at that particular job, and therefore will underestimate the taxes they need to withhold. If you have a second source of income for the year, you should consider that when doing your withholding amounts.

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    while it is true they won't know what you earned in the other jobs they will withhold from check x what the tax table tells them to withhold taking into account your W-4 information. Those tables assume that every paycheck during the year is the same, and are for the entire year, and are the only source of income.. It is possible that they will be over withholding if your previous job that year was for significantly less money.
    – mhoran_psprep
    Commented May 21, 2019 at 10:32

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