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I always assumed that the amount you withhold from a salary for federal income taxes does not change the amount you actually pay in taxes, but simply how much you get back or pay when you file your return.

However, thinking some more about it today, I see that my Wages on my W2 are roughly speaking my income minus what I withheld. Then this amount, plus deductions and exemptions, is used to compute my tax.

So this seems to mean that if I withhold more, I pay less taxes. But I never heard anyone mentioning such an important fact, and usually I only see recommendations about getting the withheld amount to be just right so that you get more money sooner and a smaller refund at return time. It would also seem to go against the main idea of taxation if I can pay quite less by simply paying more in advance. This leads me to believe that I am making a mistake somewhere. What am I missing here?

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    I think you're mistaken that your tax withholdings are calculated after the withholdings are subtracted from your gross pay.
    – quid
    Commented Apr 25, 2018 at 0:38
  • I think you meant to say just "tax" instead of "tax withholdings" there, right? But yes, you are right. Thanks!
    – user118967
    Commented Apr 25, 2018 at 1:47

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Your assumption in the first paragraph is correct: "the amount you withhold from a salary for federal income taxes does not change the amount you actually pay in taxes".

That part however: "my Wages on my W2 are roughly speaking my income minus what I withheld" - is not correct.

Your wages are in box 1 on the W-2 form, whereas your federal income tax withheld is in box 2. Closer examination of these boxes would reveal that box 1 value is inclusive of box 2 value.

Note that pre-tax deductions, such as 401(k) contributions, reduce the value in box 1, and that could possibly lead to the confusion.

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    Bingo! It so happens that in two consecutive years my pre-tax deductions were coincidentally almost the same amount as my withheld amount, and that caused the confusion. Thanks for the very clear answer.
    – user118967
    Commented Apr 25, 2018 at 1:45

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