I work at a restaurant in Ohio, and recently, the owner decided to handle payroll himself. This month, our paychecks were noticeably higher than usual. When we asked about it, he explained that there’s a rule where federal taxes don’t apply until you’ve earned a certain amount in a year.
This sounds off to me because I’ve never experienced it before. Does anyone know if this is legit? Or am I setting myself up for a big tax bill next year?
It sounds like your employer is confused. While it’s true you don’t owe federal taxes if your annual income is below the standard deduction, withholding works differently. It’s calculated per paycheck based on your projected annual income. He should consider using a payroll service if he’s unsure.
Phoenix said: @Malone
My company doesn’t withhold federal taxes if gross pay is under $500 per paycheck. They say it’s how the tables work.
That makes sense if you’re paid biweekly. Payroll systems annualize your income, so $500 per check would project to $13,000 annually, which is below the standard deduction.
No, it’s not a thing. Federal income tax is withheld based on your projected annual income, not on the idea that you haven’t hit a specific threshold yet. Your employer is misinformed.
Quade said:
LOL no, withholding is based on expected annual income. He’s got it wrong.
Without knowing more about OP’s income and filing status, it’s hard to say, but the employer might not be entirely off if they’re projecting a very low annual income.
At best, your boss doesn’t understand how withholding works. At worst, they’re trying to avoid payroll taxes. Do you get proper pay stubs showing deductions?
Tyson said:
At best, your boss doesn’t understand how withholding works. At worst, they’re trying to avoid payroll taxes. Do you get proper pay stubs showing deductions?
Yes, the pay stub shows deductions for social security and Medicare, so those are being withheld.