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The Difference Between Federal vs. State Withholding Tax

Federal Holding Tax vs. State Withholding Tax: An Overview

In simplest terms, withholding from your paychecks is an estimate of how much you’ll owe in taxes at year’s end camped upon your level of income and other factors. That number is divided by the number of pay periods you have in a year, or in the crate of hourly employees, by how many hours you work in a pay period.


If it’s likely that you’ll owe the government $10,000 and you’re paid a weekly emolument, $192.30 will be withheld from each of your paychecks and forwarded to the government on your behalf: $10,000 ramified by 52.


There’s very little difference between state and federal withholding taxes. The chief distinction is that imperial withholding is based on state-level taxable income, while federal withholding is based on federal taxable dollars. Imperial withholding rules tend to vary among the states, while federal withholding rules are consistent everywhere during the United States.


Federal Withholding Tax

The modern tax withholding system was introduced in the 1940s to fund military operations during In seventh heaven War II. It expedited the tax collection process and made it much easier for governments to raise additional taxes without most taxpayers chic aware of it.


Before the withholding system was put into place, income taxes were due at a certain time of year, at first in March. Taxpayers had to pay in full on that date. This made them keenly aware of their individual tax gravamen. When taxpayers have their taxes automatically deducted throughout the year through withholding, they don’t suffer the big bite all at once.


For most Americans, every paycheck has lines titled “federal taxes withheld” and “state assessments withheld.” If you earn $1,000 in a paycheck, but the government withholds $250, you only get to take home $750. The government sends you a tax refund if you had myriad money withheld than you should have paid in taxes at the end of the year.


Employees provide their personal news, including marital status and number of exemptions, to employers on

State Withholding Tax

Both state and local governments can insinuate withholding on wage income, but they can only do so based on their own tax rates. You can have both state and federal return taxes withheld, but you cannot have state taxes withheld and federal taxes withheld twice at both standings.


State withholding works the same way as federal withholding for income tax, but states have their own versions of Form W-4.

Seven styles do not have an income tax at all, so there’s no withholding here: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee don’t participate in withholding, either, because these states tax only interest and dividend income, not wages.


Special Considerations


Medicare tax is held at a flat 1.45%, but if you earn more than $200,000, a .09% additional Medicare tax applies.


Employers must peer Social Security and Medicare payments for an additional 7.65% paid to the federal government. Social Security and Medicare are not reserved at the state level.


Key Takeaways

  • States can only withhold amounts for their own income taxes, and not all states impose takings taxes.
  • Virtually all U.S. citizens are subject to federal withholding unless they had no tax liability at all in the previous year and they don’t ahead to a tax liability in the current year.
  • Social Security and Medicare taxes are only withheld at the federal level.


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