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I posted the below comment under this article.

http://www.fool.com/investing/general/2013/01/18/5-reasons-t...

Can anyone at this board explain to me why the IRS would change the tax rate withholding rates and increase them?


You mentioned the 2% increase back to the old rate for Social Security withholding's. I was expecting that, so no problem.

However, a surprise to me is my federal tax withholding went up quite a bit. I called my job's finance person and I was told that the 2013 tax withholding's tables increased the amount of taxes withheld across all rates.

What in the world is this? If my middle class tax rate is staying the same, why is the government doing this?

My goal is to get as close as possible to breaking even on my taxes. Meaning, I don't want a refund and I don't want to pay anything. If they withhold as much as they did, I'll get about a grand back in a refund. I don't want that.

That means the government is ripping us off and using our money as an interest free loan.

Is anyone else having their employer withhold more in federal tax? I work for a local government agency and I think they would have it right. The person says she follows the IRS tables to the T.

If this is really happening, which according to my first paycheck, it is, I plan to see if I can adjust my withholding amount to have them take out less.

If it's true the tables were increased, what in the world is happening? Can anyone explain that to me?
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I would ask your employer. As you may recall, Congress did not do their job last year. So oddly employers did not know if the Bush tax cuts for everyone would expire or not. More than a few employers (or the payroll tax software they were using) said assume rates go up.

If you don't like the way Congress is screwing things up, fire your representative.

Gordon
Atlanta
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There's been too many last minute changes and bungling by both politicians and bureaucrats to figure out exactly what happened.

And frankly, who cares what is happening. Just adjust your withholding to match your expected tax liability at the end of the year. That's a good idea every year, not just this year.

Complete a Form W-4 to change your withholding allowances and give that to your employer. You can legally claim whatever it takes to meet your tax liability.

--Peter
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However, a surprise to me is my federal tax withholding went up quite a bit. I called my job's finance person and I was told that the 2013 tax withholding's tables increased the amount of taxes withheld across all rates.

I suggest rather than donning your foil hat and going on black helicopter watch you wait for the dust to settle. It's been barely 2 weeks since this year's tax rates were determined, which is certainly not enough time for payroll software to have been rewritten. If it was based on existing law before 1/1/2013 it's probably accurate for that scheduled tax increase. As the IRS is able to get revised tables and guidance out to the payroll community there may be adjustments prescirbed. Once your withholding has stabilized at the new rates you can see whether you need to adjust your W-4 for the remainder of the year.

Also, if your annual wage is more than $200,000 you're subject to a Medicare surtax, which will be shown as additional income tax withheld, starting 1/1/2013.

Phil
Rule Your Retirement Home Fool
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if your annual wage is more than $200,000 you're subject to a Medicare surtax, which will be shown as additional income tax withheld, starting 1/1/2013.

I'm well under that. I make about 46K, plus or minus a bit. Even so, I'm on pace to FIRE at age 50.
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Sounds like your employer may have reverted to pre-Bush taxcut withholding when Congress failed to act last year. If so they will have to correct that. CNBC did a piece that said withholding for someone making $60K went down $4 on a biweekly basis due to inflation adjustment of tax brackets. However, FICA went up $45 due to expiration of the temporary payroll tax reduction passed in 2010. Which prompts me to ask, are you really talking about income tax withholding or are you talking about total deductions including FICA?
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Sounds like your employer may have reverted to pre-Bush taxcut withholding when Congress failed to act last year. If so they will have to correct that. CNBC did a piece that said withholding for someone making $60K went down $4 on a biweekly basis due to inflation adjustment of tax brackets. However, FICA went up $45 due to expiration of the temporary payroll tax reduction passed in 2010. Which prompts me to ask, are you really talking about income tax withholding or are you talking about total deductions including FICA?

I called the payroll department and asked them about this. My federal tax withholding went up about $45. My FICA tax went up about $35. I was expecting FICA to go up, not Fed tax.

She told me the IRS released new tax withholding tables and that they increased withholding rates at all levels.

If I can find a link she sent me, I'll post it. That link was to something on the IRS site.
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I said,

I called the payroll department and asked them about this. My federal tax withholding went up about $45. My FICA tax went up about $35. I was expecting FICA to go up, not Fed tax.

She told me the IRS released new tax withholding tables and that they increased withholding rates at all levels.

If I can find a link she sent me, I'll post it. That link was to something on the IRS site.


Here is the link she sent out.

http://www.irs.gov/pub/irs-pdf/n1036.pdf

Page 3 shows the rates. Here's my questions after looking at this.

If the amount of wages (after
subtracting withholding allowances)
is:


That's from the IRS page under the married section.

It appears my federal tax witholding came based on my gross pay.

Now, out of my gross pay, state, federal, FICA, Medicare, deferred comp, retirement deduction and flex spending deduction are all taken out.

My net pay is roughly $600 less than my gross pay.

Shouldn't my tax withholding rate be calculated on my net pay after most or all of these deductions?
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Thanks for the link. Those rates reflect the changes in the law made at the last minute, so that's not the problem.

It appears my federal tax witholding came based on my gross pay.

Now, out of my gross pay, state, federal, FICA, Medicare, deferred comp, retirement deduction and flex spending deduction are all taken out.

Shouldn't my tax withholding rate be calculated on my net pay after most or all of these deductions?


FICA and Medicare are based on gross minus flex spending.

Income tax is based on gross minus withholding allowances, flex spending and deferred comp.

It's doubtful, but not unheard of, that your retirement contribution would reduce your base for income tax withholding. Check with your payroll people if you're not sure.

There's a chart in Pub 15 showing how various paycheck items affect the withholding base.

Phil
Rule Your Retirement Home Fool
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Now, out of my gross pay, state, federal, FICA, Medicare, deferred comp, retirement deduction and flex spending deduction are all taken out.

My net pay is roughly $600 less than my gross pay.

Shouldn't my tax withholding rate be calculated on my net pay after most or all of these deductions?




Some, but not all of those items are deductions against which taxes are calculated.

You have gross, which is your starting point, and net, which is your take home. Between that, you have several different taxable amounts, which may or may not be shown on your pay stub.

Your 401k (I'm assuming that's what you mean by retirement deduction) isn't deductible for FICA/Medicare purposes, but is for income tax. Alternatively, your FICA and Medicare deductions are not deductible for income tax purposes.
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The key might be the "Early Release" nature of the IRS info. I noticed yesterday they still haven't released the 2013 W-4 form, which means they are still scrambling to update all their programs and documents.

I'll say it again. If your taxable income hasn't changed, and given what you said your gross pay is, you should not see an increase in federal income tax withholding due to the new tax rates. There's something else at play and it could be a programming error by your employer, an IRS error in the table, or something else entirely.

One other thing you might do is ask a coworker if they saw a jump in their withholding. Could be something got changed in your personal payroll record by mistake.

Hope you get this solved before long.
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