Understanding Wage Withholdings

Wage withholding is a part of life for people who work.

This basically means that your employer subtracts taxes from what you earn and then sends that money to the government.

Generally, employers will withhold your federal income tax, Medicare tax, Social Security Tax, and any state and local taxes that exist. .

Sometimes, you may not pay enough in these taxes, which means you will owe money come tax time. Other times, you may overpay throughout the year, which means you get a refund.

In either case, understanding wage withholding will make it easier to deal with and to handle correctly.

How Employers Calculate Wage Withholding

One thing many people are confused about is how their employers determine how much of their wages to withhold.

In most cases, how much is withheld depends on how much gross income you earned less any pre tax deductions that have been paid out before taxation.

Withholding allowances, which you choose when you set up your tax forms, also come into play. For this reason, it is very important to choose your withholding allowances wisely and, ideally, with the help and guidance of a professional tax advisor.

Choosing the wrong withholding allowance could end with you paying too much or not enough in taxes, both of which are situations that you should strive to avoid.

State and Local Taxes Vary

In addition to wage withholding, other types of taxes exist as well. These include state and local taxes, which vary greatly depending on where you live and various other factors.

Generally, you can expect to pay for things like state income taxes, local taxes, disability insurance coverage, and more.

Your financial advisor can help you to understand these taxes, as well as how to minimize them via various legal methods, such as tax deductions.

In fact, a financial advisor is always your best bet for understanding your taxes and withholdings and, even better yet, reducing them when possible. For this reason, always seek professional tax help whenever possible.