Employer saying we don't pay taxes until we earn a certain amount… is that true

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.

@Malone
My company doesn’t withhold federal taxes if gross pay is under $500 per paycheck. They say it’s how the tables work.

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.

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.

Exactly, since $500 gross per paycheck would keep you under the standard deduction unless you’re paid weekly.

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.

LOL no, withholding is based on expected annual income. He’s got it wrong.

Quade said:
LOL no, withholding is based on expected annual income. He’s got it wrong.

Federal tax withholding depends on your W-4 and wages earned. The employer uses tables for this. Social security and Medicare start from dollar one.

@Hollis
What you said doesn’t change my point lol.

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.

@Jamie
Still doesn’t change the fact that withholding is based on projected income. Can we stick to the topic?

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.

If he skips his payroll tax deposits, the IRS will notice quickly. They’re pretty strict about those deadlines.

Zola said:
If he skips his payroll tax deposits, the IRS will notice quickly. They’re pretty strict about those deadlines.

Actually, smaller employers have until the 15th of the following month to make deposits. But either way, incorrect withholding is still a big problem.

Withholding applies per paycheck based on annualized income. It’s not like you get a tax-free pass until $15,000. It’s calculated proportionally.

If you’re unsure, set aside the extra money just in case you need it for taxes later.

Your boss seems to think withholding doesn’t start until you hit the standard deduction. That’s not how it works at all.

Tell your boss to follow the withholding tables. It’s pretty straightforward.

This could lead to a mess for you. Be careful.