JANUARY 29TH, 2010
By CPA SAM
Q. I just started as a temp through an agency. I work full-time and just received my first paycheck. I want to ask about the OASDI and the NY 2010-NYCNY withholdings. I was taxed heavily for the OASDI. What is the NYCNY withholding? Most importantly, I wanted to ask you is there any way to check whether I had overpaid for taxes in a paycheck?
A. The items that came out of your check look completely appropriate. The most common questions from employees to payroll departments about paychecks come from the cryptic descriptions of deductions shown on the paystub. In your case, OASDI is the abbreviation for “Old age, survivors, and disability insurance.” This is the official name for Social Security. It is calculated as 6.2% of taxable wages up to a maximum of $106,800. This means, you can pay up to $6,621.60 this year towards this tax. Your employer(s) will also match 6.2% of your taxable wages. For lower income individuals, this tax can be the highest amount taken from the paycheck. There is another tax that is closely associated with this called Medicare. It is 1.45% of all taxable wages.
NYCNY looks like New York City Tax. All residents of New York City get to pay an extra tax. Rates on this tax range from 1.9 to 4% depending on your level of income.
As for your last question, there are only three ways to determine the correct amount of withholding. First, you download withholding formulas from each jurisdiction in which you owe tax and run hand calculations to see what is correct. Since that is time consuming and too difficult for most of us, I recommend the second method. PaycheckCity.com has a free Salary Calculator that calculates all your taxes for you using the formulas from each jurisdiction. You simply need to know what settings are on the W-4 Form you gave to the payroll department.
Most importantly, if you have specific questions about your paycheck, your payroll department should be able to assist you as long as you are not asking for tax advice.
SEPTEMBER 23RD, 2009
By CPA SAM
Q. I just got a bonus from my company and noticed the taxes were way higher than my normal tax bracket. What is going on? I live in California.
A. I have good news and bad news for you. The bad news is, the calculation is probably correct. You did not supply any numbers with your question, but hopefully, the following example will help to clear some of this up.
Congratulations on your bonus. Many folks these days would love to be in your situation instead of standing in the unemployment line.
Your payroll department has two ways to calculate withholding on bonuses or supplemental payments as we say in the payroll industry. They can either calculate using a flat percentage or they can add the bonus to your previous check, calculate taxes on the total and subtract out the values from the last check. The latter method is called the aggregate method. What is left after subtracting is nothing more than the bonus and associated taxes. Because it is much more involved, most employers will choose not to use the aggregate method. Unfortunately, this is the more accurate method since it aligns with your regular pay to get closer to your actual tax liability. It is also a better method for higher income individuals whose marginal rate may be higher than the flat rate.
If your bonus is $500, most payroll departments will simply use the flat percentage method to get your withholding. If you have received less than $1million of bonuses for the year, the federal withholding percentage will be 25%. That means right off the top, you pay $125 in taxes. Social Security and Medicare remove another 7.65% or $38.25. In California, there are two percentages possible: 9.3% and 6%. Bonuses use the 9.3% rate which takes another $23.25. If you have not reached the limit on California SDI (State Disability Insurance) withholding for the year, this will be calculated at 1.1% for 2009 for another $5.50. This is a total withholding burden of 43.05%. You will take home $284.75 unless your employer grosses up the bonus and pays the taxes for you. Tax withholding on your regular wages may be lower for federal and state purposes which is why this seems so high.
The good news is that if this is actually too much withholding, you will get some of it back when you file your tax returns for federal and state purposes. But until then, check with your tax planner or CPA, you may be able to adjust your W-4 to have less withholding on your regular wages and reduce the size of your eventual refund. If you always end up owing extra when you file your tax return, this is a great time to catch up.
APRIL 16TH, 2009
By CPA SAM
Q. My employer keeps pushing Direct Deposit on all their employees. Why should I do that? I don’t want my employer touching my bank account.
A. We all have issues trusting new things. In this case, unless you employer is Al Capone or Bernie Madoff, it’s probably safe to sign up for direct deposit. It simply allows your employer’s payroll company to put your paycheck directly into your designated bank account. Instead of you waiting for a check on payday and then driving it to a bank, you have access to the funds first thing on payday. You can instantly see if there has been a mistake and can have your employer fix it much more quickly. You are probably already getting your paystub online so this is just one more electronic way of reducing paper clutter.
Your employer may begin mailing checks the day before payday to show how much hassle it is to deal with a check. If they do this, think about the delay. You can’t get your check until the mail actually arrives. You will then likely get to the bank too late to deposit it. Checks normally don’t clear very fast so you actually do not have official access to your funds until 1 or 2 days later. Is that really good money management?
Reasons I hear why employees don’t like direct deposit include:
1) I don’t want my spouse to see what I make
2) I can’t get a bank account
3) I don’t trust banks and want to carry cash
4) I don’t have access to a computer so I can’t see if it was processed correctly.
Your employer can help you address some of these issues. We’ll talk about pay cards for a solution to number 2 in a future post. Go paperless!
OCTOBER 29TH, 2008
By CPA SAM
Q. My paycheck is wildly different each time because I am paid commission in the 2nd check and a draw on the first check of the month. I submit a new W-4 each period to keep my withholding down. Now my payroll department doesn’t want to accept more than 1 change each month. Is this legal?
A. Probably without knowing it, your question is very similar to the following scenario: I only want to Read more »
SEPTEMBER 24TH, 2008
By CPA SAM
Q. I received a bonus check and the amount that was on the paystub was $500 less than what the bonus came out to. When asking the owner he stated that money was used to pay for the employer’s share of the taxes. On top of that, they took out taxes for my portion as well. On the paystub, it does not show the taxes that were taken out. Did I get cheated?
A. The short answer is Read more »
SEPTEMBER 3RD, 2008
By CPA SAM
Q. I am currently applying for a loan and need copies of my paystubs. Where can I get those? I checked online but can’t find them.
A. When I did support for PaycheckCity.com, I can’t tell you how many times I was asked that question. Everything from:
- How do I get my paystubs to
- What does my W-4 say to
- I lost my W-2. Can you get me a new copy?
was asked to the Read more »
AUGUST 27TH, 2008
By CPA SAM
Q. Why does my company withhold both New Jersey and New York taxes from my paycheck. I used to work in New York but don’t any longer. I now work in New Jersey only. I have always lived in NJ. What forms to I use to make sure that NY taxes are not withheld from my earning?
A. There is a link on the side of my blog under the “Forms” heading for State W4 Forms. That page contains Read more »
MARCH 20TH, 2008
By CPA SAM
Q. I have some unfamiliar tax deductions on my paycheck. What could these be?
A. This is a very loaded question. Every company could create acronyms that are unique and describe the exact same tax item as another company, yet with a completely different code. There are however 4 standard tax deductions that will appear on the majority of pay stubs received in this country.
1. Federal – Could be called FIT, fed tax, f tax or Fed TX. This is often the first deduction that shows below the gross wages line. This is a calculation for withholding that is deposited on your behalf with the IRS by your employer towards your federal tax liability. The calculation comes from your Marital status and allowance value settings on the Federal Form W-4 that you gave your employer at some time in the past. The numbers on this document should be reviewed regularly and especially in Read more »
