Impact of w2s with no federal withholding?

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Impact of w2s with no federal withholding?

Post by Bro »

I am working through my taxes now. I have 4 w2s - two of those w2s did not withhold any federal income tax on about $5k income in aggregate (total between the two).

The overall result is that my income is about $1000 less than last year, but I have to pay $1800 in taxes relative to my around $400 refund last year.

Is this a logical result or am I missing something?

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Re: Impact of w2s with no federal withholding?

Post by classical_Liberal »

Employers have specific guidelines for tax withholding. They base it on the number of exceptions you chose on your W-4 form.

Given you have multiple employers, each is following the guideline, and those guidelines do not assume you have other income. So, if you earn small amounts (ie 300 a month from one employer and 200 from another) neither will withhold federal taxes because individually you would not owe any, if either was your only income source. The guidelines are annualized with each paycheck, so federal withholdings increase or decrease assuming your current pay is annualized (ie 26 paychecks for biweekly pay). This is why people will often complain they worked overtime and received very little additional net pay.

Short answer, its could correct because they didn't withhold on two of your jobs.

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Re: Impact of w2s with no federal withholding?

Post by Augustus »

You'll end up paying the same amount of taxes regardless. Witholding has no effect whatsoever on how much you have to pay in taxes. Payroll calculators/systems don't do witholding under a certain amount of income.

The only practical effect it should have on you is that you know you need to set aside 20-30% in a bank account on the paystubs that don't withold. Then you just need to do your tax filing correctly and pay the correct amount.

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Re: Impact of w2s with no federal withholding?

Post by IlliniDave »

$1800 sounds like a lot on $5K (really a $4K net) unless your total income is high 6-figures and the W2s also did not withhold SS/medicare taxes. I haven't done my taxes yet under the new law so it's hard to say what might be going on. Rates are lower, standard deductions are up, but some other deductions are now capped so if you pay a lot of state income tax, property tax, maybe mortgage interest (don't remember the specifics) that could affect you.

With 4 W2s all taking into account a $12K or $24K standard deduction (and higher child credits/dependent deductions I believe, if applicable) withholding could get messed up. But in the end with less income you should have less total tax paid, which is the better comparison to make rather than comparing the net differential at the end of it all (i.e., comparing refunds/what you owe after doing the calculations).

If you underwithhold too much (or don't pay enough quarterly estimated taxes if applicable) you can be penalized, but I'm not familiar with the specifics and not motivated to slog my way through the details (link below). I almost got caught on that due to some crazy high cap gains distributions from a mutual fund about 20 years ago, so now I have extra tax taken out of every paycheck to avoid having to file quarterly and make estimated tax payments. First world problem, I suppose. ... rt-in-2018

George the original one
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Re: Impact of w2s with no federal withholding?

Post by George the original one »

The tax reform that went through as a result of Trump's election changed the withholding tables, such that many people had more money in their paycheck, yet owed more total federal tax (even if your tax rate changed favorably) at the end of 2018 than 2017 because deductions were capped if you have high state taxes.

And, as others have noted, below a certain threshold for an employer, there is no withholding. It's up to you to estimate and have enough withheld if you're outside the norm (single job, very little investment income).

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Re: Impact of w2s with no federal withholding?

Post by Jason »

I get paid without federal withholding and my tax advisor guides me to pay 33% in estimated taxes quarterly. $1,800 is 36% of 5K so its not to far off. Also, you will need to pay state taxes unless you live in Texas or Florida.

You will also be penalized. Depending on how you invested the non-taxed money will determine if you actually incurred a personal loss.

Edit: If I'm not mistaken, when you are paid without federal withholding, you are designated an independent contractor. This means you can deduct all work related expenses - car, medical mileage, home office, cell phone etc. - pertaining to the 5K.

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