Dumb tax question

[Stlbroke]

My year to date pay is $5800. I've paid $970 in federal taxes.  Shouldn't I have paid 10% or $580 so far?

[Eric]

You make about $70k per year, yes?  Most payroll systems average it so it's the same throughout the year, so that you're not paying 10% in January and 25% from June to December.  Is that what you're getting at?

[Cromacster]

You make about $70k per year, yes?  Most payroll systems average it so it's the same throughout the year, so that you're not paying 10% in January and 25% from June to December.  Is that what you're getting at?

Yea.  If you are receive standard W-2 income your taxes off are based off a chart that is totally separate from income tax brackets/ marginal rates.  This also results in people bitching about how their bonus's are taxed at higher rates.....

IRS pub 15-e if you are interested.  It's a page turner for sure, but if you are only interested in the withholding tables jump to page 45.

http://www.irs.gov/pub/irs-pdf/p15.pdf

[dandarc]

Eric nailed it - payroll generally assumes you made/make this amount for the whole year and evens out the tax-burden.

You actually could do this if your HR department wouldn't get too sick of you constantly changing that W-4 - actually would be 0% on that first chunk up to at least the standard deduction / exemption amounts.  You could only do this through withholding - IRS assumes withholding happened evenly throughout the year even if it didn't.  If you were paying estimated taxes and you back-loaded the tax payments while your income was even, you'd definitely owe penalties / interest.

[Stlbroke]

Oh I see.  I was confused because I was expecting to see less taken out early in the year. Thank you. 

That total did not include 401k and health ins. 

[seattlecyclone]

Also remember that your withholding is actually just your payroll department's best guess of what you owe based on the W-4 that you supplied to them. If you calculate that you'll come out way ahead (or behind) at the end of the year if all the rest of your paychecks end up being the same, you can and should submit a revised W-4 so that they correct the withholding.

[MDM]

Oh I see.  I was confused because I was expecting to see less taken out early in the year. Thank you. 

That total did not include 401k and health ins.

If the $5800 is the amount after 401k and ins. have been deducted, you expect that monthly amount for the rest of year, and will have no other significant income or tax credits, then you should have ~$885/mo deducted for federal income tax. 

See http://www.irs.gov/Individuals/IRS-Withholding-Calculator - the simpler your situation, the more accurate that calculator.  Also note that IRS likes getting an interest-free loan from you.  If their calculator sees that you will owe even a small amount of tax next April it will suggest having more withheld now.  You don't have to follow that advice as long as you understand your situation.

[slugline]

Yup, it's all about an attempt to even things out through the year.

Watching a company switching to a strict "pay as you go" withholding could be entertaining, as employees would freak out as their take-home pay would constrict every time they entered a new tax bracket!