Taxes and Withholdings

Complete IRS Form W-4 during onboarding, which tells your employer how much federal income tax to withhold. The 2024 W-4 uses a five-step system: enter personal information (Step 1), claim dependents if applicable (Step 3), add other income or deductions (Steps 4a-4c), and sign.

Common mistakes: leaving Step 2 blank when you have two jobs (causes under-withholding), claiming dependents you're not eligible for (the child must live with you more than half the year and you must provide more than half their support), or never updating your W-4 after major life changes. Check your first paycheck stub to confirm withholding looks reasonable against your expected annual tax bill.

State income tax depends on your state—nine states have no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming). States with income tax withhold 1% to 13% depending on the state's brackets and your earnings.

Your employer matches your 7.65% FICA contribution dollar-for-dollar but you never see that amount—it goes directly to the IRS. What you see on your paystub is only your half.

Run this check in January after updating your W-4, in April after filing your prior year's return, and whenever your income changes significantly. If the estimator says you'll owe $500+ at tax time, submit a new W-4 with extra withholding in Step 4(c).

Red flags you're under-withholding: you owed $1,000+ last April, you have untaxed side income over $5,000, you claimed many dependents but your situation didn't actually change, or you have investment income your employer doesn't know about. The underpayment penalty applies if you owe $1,000+ and didn't pay at least 90% of this year's tax or 100% of last year's tax through withholding and estimated payments.

You'll owe the IRS when you file your tax return by April 15, plus potential underpayment penalties. The underpayment penalty is essentially interest on the tax you should have paid throughout the year—the IRS calculates it quarterly using the federal short-term rate plus 3 percentage points (around 7-8% in 2024).

If you owe $5,000+ and can't pay by April 15, file your return on time anyway to avoid the failure-to-file penalty (5% per month up to 25%). Then set up an IRS payment plan online—short-term plans (120 days or less) have no setup fee, long-term installment agreements cost $31 to $225 depending on payment method.

Submit a new W-4 to your employer's payroll or HR department anytime. Complete the form with your updated information—if you want more taxes withheld, enter an extra dollar amount in Step 4(c); if you want less withheld, ensure you're claiming all eligible dependents in Step 3 or enter deductions in Step 4(b).

You cannot specify an exact dollar amount for total withholding per paycheck. Instead, the W-4 gives the employer inputs (dependents, other income, deductions, extra withholding) and the employer's payroll system calculates withholding using IRS Publication 15-T tables.

Can I claim exempt from withholding?

You can claim exempt on your W-4 only if you had no federal tax liability last year and expect none this year. This means your total tax was zero after credits and you expect to owe zero this year—typically only accurate if you're a dependent student earning under $13,850 (2024 standard deduction).

What's the difference between a tax deduction and a tax credit?

A deduction reduces your taxable income (lowering your tax bill by your marginal rate times the deduction), while a credit reduces your tax owed dollar-for-dollar. A $1,000 deduction saves you $220 if you're in the 22% bracket; a $1,000 credit saves you $1,000.

Do I need to withhold state taxes if I work remotely in a different state?

How do bonuses and commissions affect my withholding?

Employers withhold federal income tax on bonuses using either the percentage method (flat 22% for bonuses under $1 million) or the aggregate method (adding the bonus to your regular pay and withholding as if that's your normal paycheck, which often results in over-withholding). The withholding method doesn't change your actual tax owed when you file—it only affects cash flow during the year.