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I claimed 2 allowances on my W-4 form, 1 for being myself and nobody claiming me as a dependent, and 1 for being single and having only one job.

My first paycheck I got paid $673.08. Then I had the following taken off:

  • Medicare Employee Addl Tax: $0.00
  • Federal Withholding: -$28.00
  • Social Security Employee: -$41.73
  • Medicare Employee: -$9.76
  • NY - Withholding: -$12.46
  • NY - Disability Employee: -$1.20

Total: -$93.15

Net Pay: $579.93

I thought it looked strange because the Federal and NY state taxes are so low. Does anyone have an idea of any possibilities of why this could be?

  • Is that a paycheck for one week, two weeks, or something else? – Ben Miller Aug 11 '16 at 2:23
  • @BenMiller We get paid once every two weeks – mr eyeglasses Aug 11 '16 at 2:30
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For most employees each paycheck is handled in isolation. The tax calculations don't care what you made last paycheck or what you will make next paycheck. The employer doesn't know what you made or will make with other employers.

The tables in IRS pub E do the best job of explaining how your federal tax is calculated.

Based on your pay period being every two weeks each of the 2 allowances is worth $155.80. This amount does not depend on single or married, only the fact that 155.80 *26 is worth approximately 1 personal exemption ($4050 in 2016).

Therefore before determining your tax, the payroll company removes the value of the allowances as directed on page 42:

$673.08  Gross pay
$311.60  subtracts the value of two allowances
-------
$361.48  this is then used to calculate the tax to withhold.

Now moving onto the table 2 (single and biweekly pay) on page 44 they withhold $0 plus 10% of the amount over $87.

For you they should withhold (361.48-87.00)*0.10 or $27.45 (I have seen other employers round the tax withholding to the next dollar)

For the tax tables they see somebody that makes $17,500 a year and will have personal exemptions and standard deductions worth ~10,000.

The tax tables don't do a good job of withholding for people who have variable pay (too little withheld on small paychecks and too big on large paychecks), part year income (too much withheld), and multiple jobs (each is in isolation)

note: if the company pays every two weeks and that example check only covered 1 week, the next check will have the social security and medicare amount withheld double, but the federal withholding will jump to about $89 because that tax tables would treat your annual income as being in the 15% tax bracket.

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FICA is a flat percentage until you reach the cap. Income taxes are based on marginal rate, and are calculated on annual basis.

So, if you start a new job in the second half of the year, the income tax will be calculated based on your earnings from now until the end of the year, which means you won't reach a high marginal rate bracket. That makes your tax withholding be at a relatively low rate. Obviously, this is assuming you only ever worked with that employer and earned nothing else throughout the year. If that assumption doesn't hold, you may end up with not enough withholding to cover your actual liability and will have to send a check with your tax return.

  • Thank you. Since I have never worked with this employer and earned nothing else throughout this year, does that mean I won't have to send additional money to the IRS when I file my taxes for this year? – mr eyeglasses Aug 11 '16 at 2:34
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    @mreyeglasses not necessarily, but you're likely to be quite close. You may need to send some, or claim a refund of some, but if you calculated your allowances correctly - these amounts will be small. – littleadv Aug 11 '16 at 6:12
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It is in the middle of the calendar year. They calculate your federal taxes as if you would have the same income for the rest of the year. They also know that you did not have that income for the first half of the year.

Consider your income from this paycheck, multiply by the remaining number of weeks, and consider that annual income: 673*~20 weeks = 13460 $; your tax would be rather low. That's what they deduct.

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