Why was I taxed at a whopping 38% of my income?

[Balt]

And even the most inefficient company is not going to waste money as much as the government does.

Unless they are a government contractor, in which case they will bleed as much money from the government as they possible can.

 

[who?]

President Reagans tax reform lowered the top rates but eliminated a lot of deductions for stuff the working class couldn't afford. As a result the rich actually wound up paying more.

 

[Zeze]

Really? He says he's a contractor with billable hours. Wouldn't he subject to a 1099 and not a W-2??

I don't know much about contracting (i.e. essentially self employed paying double FICA and all of your own taxes) but if that were the case, why would they be holding taxes out at all? Wouldn't he be responsible for paying taxes (quarterly) if that were the case?

Sounds to me like he is an employee of the company and may have a contract to work a certain length of time at a certain rate/benefits package.

Yup, I'm W2.

 

[Zenmervolt]

Really? He says he's a contractor with billable hours. Wouldn't he subject to a 1099 and not a W-2??

Under most circumstances persons paid on 1099 aren't subject to withholding.

You still have to pay the taxes, of course, but they generally aren't withheld from 1099 payments.

ZV

 

[dbk]

ok so was it actually taxes or were you referring to the withholding as taxes.. the latter makes more sense to me as.. did you get a bonus recently..signing bonus?

I'm imagining the OP looking at his gross pay vs net and assuming the deduction was all taxes. Obviously, I'm not trying to insult the OP as a simpleton...

 

[spidey07]

ok so was it actually taxes or were you referring to the withholding as taxes.. the latter makes more sense to me as.. did you get a bonus recently..signing bonus?

I'm imagining the OP looking at his gross pay vs net and assuming the deduction was all taxes. Obviously, I'm not trying to insult the OP as a simpleton...

It's normal. Taxes are withheld for that pay period as a w2 as if you made that's rate all year.

Completely normal. Total tax liability will be figured out when he files for the year.

40 percent taxation and witholding is the norm. In some places it's as much as 50%.

 

[Schfifty Five]

So OP, are you a contract worker or an employee?

 

[spidey07]

So OP, are you a contract worker or an employee?

He's w2 contract. Has to watch dual employment issues likely.

 

[Humpy]

Despite all the weirdness in this thread the OP is just an employee who has money withheld from his paycheck the same way millions of other employees do.

Why the hell is this a thing?

 

[mizzou]

I withheld too much last year....we'll see.

Usually I'm fairly spot on.

 

[Engineer]

I withheld too much last year....we'll see.

Usually I'm fairly spot on.

Yea, pisses me off that the IRS has a double standard. You can over withhold as much as you want and it's just a free loan to the IRS. If you under withhold a certain amount ($1,000 I think) for 2 years in a row, you can receive a penalty and be put on quarterly tax payments!

 

[Zenmervolt]

Yea, pisses me off that the IRS has a double standard. You can over withhold as much as you want and it's just a free loan to the IRS. If you under withhold a certain amount ($1,000 I think) for 2 years in a row, you can receive a penalty and be put on quarterly tax payments!

It's $1,000.00 or 10% of the total tax, whichever is larger. (See IRS Pub 505)

So if you owe $3,000.00 in total tax but had only $2,001.00 withheld, you would owe no penalty.

Likewise, if you owe $30,000.00 in total tax but had only $27,001.00 withheld, you would also owe no penalty.

The reason for the penalty and possible mandatory quarterly estimated payments is because history has proven that a disproportionately high number of people who underwithhold never end up paying.

ZV

 

[dave_the_nerd]

But that's besides the point, I was referring more to individuals and small companies, I probably should have said business. Mom and pop shops, and stuff.

Individuals who are poor are more likely to make bad financial decisions.

Perfectly informed, perfectly rational actors are largely a myth.

It's a very narrow band of people (small business owners often fall into this category) that have the money and education to actually be informed and make good decisions, take advantage of opportunities when they arise, and preside over a bureaucracy small enough to be agile and get those decisions implemented properly.

Of course, since they're the most likely to Get Shit Done, and they're still human, they are simultaneously the most dangerous segment of society.

Humans suck, btw.

 

[Engineer]

It's $1,000.00 or 10% of the total tax, whichever is larger. (See IRS Pub 505)

So if you owe $3,000.00 in total tax but had only $2,001.00 withheld, you would owe no penalty.

Likewise, if you owe $30,000.00 in total tax but had only $27,001.00 withheld, you would also owe no penalty.

The reason for the penalty and possible mandatory quarterly estimated payments is because history has proven that a disproportionately high number of people who underwithhold never end up paying.

ZV

Thanks, didn't know the full law as I never looked it up. However, I was hit once by it and sent a letter that if I do it again (consecutive years), I would be penalized as well as put on quarterly tax payments (IIRC). The problem was I had lots of overtime that year and it put me into the highly compensated employee category, which force a refund of about 75% of my 401k money for the year. They didn't hold taxes on the refund and that caused me to owe quite a bit and triggered the letter from the IRS on under withholding.

 

[stlc8tr]

It's $1,000.00 or 10% of the total tax, whichever is larger. (See IRS Pub 505)

There is another safe harbor for withholding 100% of last year's tax liability (110% if AGI is $150K+).

As long as you are covered by a safe harbor, estimated tax payments are not needed.

 

[SparkyJJO]

Not at all. Tax rates used to be MUCH higher.

Yeah, I know, glad they aren't anymore, but 38% is still ridiculous.

 

[iGas]

I do not no, but I hated that they bumped me into the 40.7% tax bracket for 2013.

 

[Engineer]

I do not no, but I hated that they bumped me into the 40.7% tax bracket for 2013.

ALL taxes? In the US? There isn't a 40.7% bracket that I know of in the US?

 

[Zenmervolt]

Thanks, didn't know the full law as I never looked it up. However, I was hit once by it and sent a letter that if I do it again (consecutive years), I would be penalized as well as put on quarterly tax payments (IIRC). The problem was I had lots of overtime that year and it put me into the highly compensated employee category, which force a refund of about 75% of my 401k money for the year. They didn't hold taxes on the refund and that caused me to owe quite a bit and triggered the letter from the IRS on under withholding.

Yeah, letters from the IRS seldom sound friendly, which doesn't help them. And I've seen a few similarly uncommon situations where the "automatic" IRS response seemed a bit excessive. Sometimes it seems like half of any case involving the IRS involves simply talking the client down and explaining what the IRS doesn't.

There is another safe harbor for withholding 100% of last year's tax liability (110% if AGI is $150K+).

As long as you are covered by a safe harbor, estimated tax payments are not needed.

Yup, I should have mentioned that too. Thanks! :thumbsup:

ZV

 

[mikeford]

If you make over the Social Security max per year at some point like Nov or Dec they stop deducting it from your check, Jan resets, not a tough concept.

 

[spidey07]

Once you pass the limit for SS they stop witholding when you do regardless of when in the year it is. But if you have other income (stock options, other w2 income) they don't know you're over and keep witholding.

 

[Engineer]

Once you pass the limit for SS they stop witholding when you do regardless of when in the year it is. But if you have other income (stock options, other w2 income) they don't know you're over and keep witholding.

The other income would also need to withholding SS also for your situation to work, but in that assumption that multiple sources are withholding SS and you pay in too much, is that returned on a regular tax return or is there something special to fill out to get the excess back?

 

[spidey07]

The other income would also need to withholding SS also for your situation to work, but in that assumption that multiple sources are withholding SS and you pay in too much, is that returned on a regular tax return or is there something special to fill out to get the excess back?

Credited when you file normally as an overpayment. So if you overpaid 5,000 that is taken as a straight credit off of your federal taxes owed.

 

[Zenmervolt]

Once you pass the limit for SS they stop witholding when you do regardless of when in the year it is. But if you have other income (stock options, other w2 income) they don't know you're over and keep witholding.

They stop withholding FICA. They do not stop all withholding.

ZV

 

[Engineer]

They stop withholding FICA. They do not stop all withholding.

ZV

Technically, they stop withholding the SS portion of FICA, not the Medicare portion (which, as you know, has no income limit)!

(and I think Spidey knew and meant it that way! )