How will my income tax vary throughout a year where my income fluctuated

Question

I am in the USA: Will the income tax percentage change throughout the year if my (hourly) wage in the spring was low, then high in the summer, then in the middle of the start and end now in the fall?

This question was not my specific question, but the answers are kind of similar: Does my net paycheck decrease as the year goes on due to tax brackets filling up?

But they are not specific to my question. Does my previous earnings affect my current income tax rate. I ask because at my current job my hourly wage is less than the summer job, although it seems my income tax that is withheld is higher

Answer 1

In the US, income tax rates are calculated at end of year based on your income for the entire year. Your tax return is the reconciliation of what was withheld vs what is owed.

Your income tax withholding rate can fluctuate throughout the year if your earnings fluctuate. Payroll programs calculate withholding based on the current pay period independent of all others, as if what you earned that pay period is what you will earn every pay period for the year. So if your income varies enough they will withhold at different rates throughout the year.

The methodology is outlined by the IRS, Publication 15-A has the full details, I'm not sure if there are portions up to interpretation that result in differences between systems, but your withholding should be pretty close to what is shown in the IRS documentation. There are certainly employers who do tax withholding improperly.

An employer has no way of knowing how much you earned or was withheld by another employer, so they will act independently.

This would just be for the federal income tax withheld, there could be other factors at play that are creating a higher percentage disparity between your gross and net pay.

Answer 2

In the United States, the amount withheld in each paycheck is a function of:

1. The gross dollar amount after pretax deductions.
   • Do you have a different set of healthcare, commuter, or other deductions (i.e. different city or state)? If you have variable hours or overtime, the gross amount each period is the basis of the calculation.
2. Marriage status on the W-4 form you gave your employer.
3. The number of allowances you claim on the W-4 form you gave your employer.
   • Note allowance B on the form. If you started your current job before you left your first job, you may have put 0 for this, leading to fewer allowances at employer #2, leading to the higher withholding you are seeing. If this is now your only job, ask your employer to let you submit a new W-4 to your payroll department reflecting your current status.
4. The payroll period (e.g. weekly, biweekly, semimonthly, monthly, quarterly, bonus).
   • As a side note, if you receive a bonus separate from the regular pay, there is a "period" for that as well that will lead to higher than typical withholding. If your employers' used different periods, then this could also be the reason.

Payroll processors are allowed to use an IRS provided lookup tables or perform a calculation that can diverge by a few dollars per year. If your numbers are close to the lookup tables in the link, then it's OK. At the end of the year, the tax owed is a calculation based on your total earnings, less the total withheld over the year.

Answer 3

"Does my previous earnings affect my current income tax rate."

Short answer: No. Withholding is calculated for each paycheck, and it is calculated as if you made that same rate of pay all year. If you had a job for one week that paid $1000, your employer should withhold an amount that is approximately 1/52 of what your taxes would be if you made $52,000 a year. Even if you had jobs the other 51 weeks of the year with a very different rate of pay, or were unemployed the rest of the year.

Which when you think about it, makes sense. When you get your first paycheck in January, your employer has no way to know for sure what your pay will be for the rest of the year. You might get a much better paying job tomorrow. You might quit and not work the rest of the year. How would he know? Of if you have more than one job during the year, would you want to be required to tell your second employer how much your first employer paid you? You might not mind ... but then again you might not want to. So the reasonable thing to do is to treat each paycheck as if it was "typical". If you get paid once a week, assume your total pay for the year will be 52 times this amount, etc.

Bear in mind that if it's wrong, it doesn't matter in the long run. When you do your taxes the next year, you take your total income and deductions and so forth and calculate how much tax you owe. Then you subtract what was withheld. If too much was withheld, you get a refund. If too little, you have to pay the difference. Unless your withholding is so high that it doesn't leave you enough to live on during the year, or so low that you have to pay penalties, it doesn't matter.