941 Rev January 2011 2012: Fill & Download for Free

Governments like the USA and many others impose these types of taxes in order to hide the actual tax rates from the general public therefore making it easier for the IRS to collect and to raise taxes in the future. Here is an explanation of the three types of withholding taxes currently imposed by Congress and implemented by the IRS in the USA and please find below the current published rates for 2016:There are Three key types of withholding tax that are imposed by Congress at various levels in the United States:Wage withholding taxes,[1]Withholding tax on payments to foreign persons, andBackup withholding on dividends and interest.The amount of tax withheld is based on the amount of payment subject to tax. Withholding of tax on wages includes income tax, social security and medicare, and a few taxes in some states. Certain minimum amounts of wage income are not subject to income tax withholding. Wage withholding is based on wages actually paid and employee declarations on Federal and state Forms W-4. Social Security tax withholding terminates when payments from one employer exceed the maximum wage base during the year.Amounts withheld by payers (employers or others) must be remitted to the relevant government promptly. Amounts subject to withholding and taxes withheld are reported to payees and the government annually.During World War II, Congress introduced payroll withholding and quarterly tax payments with the vote of the Current Tax Payment Act of 1943 :In the History of the U.S. Tax System, the U.S. Department of Treasury describes tax withholding.This greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer's awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.[2]In the United States, withholding by employers of tax on wages is required by the federal, most state, and some local governments. Taxes withheld include federal income tax,[3]Social Security and Medicaretaxes,[4]state income tax, and certain other levies by a few states.Income tax withheld on wages is based on the amount of wages less an amount for declared withholding allowances (often called exemptions).[5]Amounts of tax withheld are determined by the employer. Tax rates and withholding tables apply separately at the federal,[6]most state, and some local levels. The amount to be withheld is based on both the amount wages paid on any paycheck and the period covered by the paycheck. Federal and some state withholding amounts are at graduated rates, so higher wages have higher withholding percentages. Withheld income taxes are treated by employees as a payment on account of tax due for the year,[7]which is determined on the annual income tax return filed after the end of the year (federal Form 1040 series, and appropriate state forms). Withholdings in excess of tax so determined are refunded.Under Internal Revenue Code section 3402(f)(2) and related U.S. Treasury regulations, an employee must provide the employer with a Federal Form W-4, “Employee's Withholding Allowance Certificate."[8]Many states require a similar form. The form provides the employer with a Social Security number. Also, on the form employees declare the number of withholding allowances they believe they are entitled to. Allowances are generally based on the number of personal exemptions plus an amount for itemized deductions, losses, or credits. Employers are entitled to rely on employee declarations on Form W-4 unless they know they are wrong.Social Security tax is withheld from wages[9]at a flat rate of 6.2% (4.2% for 2011 and 2012[10]). Wages paid above a fixed amount each year by any one employee are not subject to Social Security tax. For 2015, this wage maximum is $118,500.[11]Medicare tax of 1.45% is withheld from wages, with no maximum.[12]Employers are required to pay an additional equal amount of Medicare taxes, and a 6.2% rate of Social Security taxes.[13]A few states also impose additional taxes that are withheld from wages.Wages are defined somewhat differently for different withholding tax purposes. Thus, federal income tax wages[14]may differ from Social Security wages[15]which may differ from state wages.Withholding on payments to foreign personsEditCompanies and individuals who make certain types of payments to foreign persons must withhold Federal income tax on those payments.[16]Foreign persons include nonresident aliens, foreign corporations, and foreign partnerships.[17]Payments subject to withholding include compensation for services, interest, dividends, rents, royalties, annuities, and certain other payments.[18]Tax is withheld at 30% of the gross amount of the payment. This withholding rate may be reduced under a tax treaty. This tax withheld is usually considered a final determination and payment of tax, requiring no further action or tax return by the foreign person.[19]In addition, partnerships are required to make tax payments (referred to as withholding) on behalf of foreign partners.[20]These payments are required regardless of whether income is actually distributed to the partner. Payments are also required quarterly or at year end for business income or other undistributed income. Partnership payments on business income are treated like estimated tax payments, and the foreign person must still file a U.S. tax return reporting the business income.Purchasers of U.S. real estate must withhold 10% of the sales price from payments to foreign sellers.[21]This amount can be reduced to the anticipated Federal income tax due, upon advance application onForm 8288-B to the Internal Revenue Service. These payments are treated like estimated tax payments, and the foreign person must still file a U.S. tax return reporting any gain or loss.Backup withholdingEditMain article: Backup WithholdingPayers of interest, dividends, and certain other items must withhold 28% Federal income tax on such payments in limited circumstances.[22]Generally, this applies only if the recipient is a U.S. person, and eitherthe person has failed to provide a tax identification number on Form W-9 to the payer, orthe Internal Revenue Service (IRS) has notified the payer that the payer must withhold.Payment of withheld taxesEditWithheld taxes must be paid to the appropriate government promptly. Rules vary by jurisdiction and by balance of total payments due. Federal employment tax payments are due either monthly or semi-weekly.[23]Federal tax payments must be made either by deposit to a national bank or by electronic funds transfer. If the balance of Federal tax payments exceeds $100,000, it must be paid within 1 banking day. Beginning January 1, 2011, payments may be made only by electronic funds transfer. State rules vary widely, and generally allow slightly more time for deposit of withheld taxes.Reporting of withheld taxesEditEmployers must file a quarterly report of aggregate withholding taxes, Form 941, with the Internal Revenue Service. This report includes income, Social Security, and Medicare tax totals for the quarter. Partnerships making payments for partners must fileForm 8813 quarterly. State requirements vary.All persons withholding taxes must file annual Federal and state reports of the tax withheld and the amount subject to withholding. A copy must be provided to the employee or other payee. The relevant forms are as follows:Form W-2 series for wages (the Federal report is also used for states), due to employees by January 31. A summary is filed on Form W-3.Form 1042-S for payments to foreign persons, due to payees by March 15. A summary is filed on Form 1042.Form 8805 for partnership payments, due at the same time as the partnership return. A summary is filed on Form 8804.Form 1099 series for backup withholdingFederal filings must be done electronically if more than 250 forms are required.[24]States generally do not require separate filings other than for partnerships, instead relying on information provided by the IRS.PenaltiesEditFailing to pay Federal taxes withheld can result in a penalty of 100% of the amount not paid. This may be assessed against anyone responsible for the funds from which payment of withheld tax could have been made.Paying withheld Federal taxes late may result in penalties up to 10%, plus interest, on the balance paid late. State penalties vary. Failure to timely file withholding tax forms may result in penalties up to $50 per form not filed.Intentional failures may result in criminal penalties.These are the current withholding tax rates for 2016:IRS Announces 2016 Tax Rates, Standard Deductions, Exemption Amounts And MoreKelly Phillips Erb ,FORBES STAFFI cover tax: paying tax is painful but reading about it shouldn't be.Keep in mind that the floor for medical expenses remains 10% of adjusted gross income (AGI) for most taxpayers.The Internal Revenue Service (IRS) has announcedthe annual inflation adjustments for a number of provisions for the year 2016, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items.These are the applicable numbers for the tax year 2016 – in other words, effective January 1, 2016.They are NOT the numbers and tax rates that you’ll use to prepare your 2015 tax returns in 2016 (you’ll find them here). These numbers and tax rates are those you’ll use to prepare your 2016 tax returns in 2017.If you aren’t expecting any significant changes, you can use the updated tax tables to estimate your liability for the 2016 tax year. If, however, you are expecting to make more money, get married, buy a house, have a baby or other life change, you’ll want to consider adjusting your withholding or tweaking your estimated tax payments.Tax Brackets. The big news is, of course, the tax brackets and tax rates for 2016:KPMGVoiceKPMGVoice: Biosimilars: A New Remedy For Rising Prescription Drug Costs?You can see how the rates for 2016 compare to the2015 brackets here.GalleryBest And Worst States For TaxesLaunch Gallery51 imagesRecommended by ForbesThe Forbes 2016 Tax GuideMOST POPULARPhotos: The World's 50 Most Valuable Sports Teams 2016Philippines Should Sue China For $177 Billion In South China Sea Rent And ...MOST POPULARPhotos: The Global Celebrity 100 2016MOST POPULARThe Walking Dead's Enduring AppealThe standard deduction amounts for 2016 are as follows:For 2016, the additional standard deduction amount for the aged or the blind is $1,250. The additional standard deduction amount is increased to $1,550 if the individual is also unmarried and not a surviving spouse.For those taxpayers who itemize their deductions, the Pease limitations, named after former Rep. Don Pease (D-OH) may cap or phase out certain deductions for high income taxpayers. The Pease thresholds for 2016 are:If the Pease limitations apply, the total of all your itemized deductions is reduced by the lesser of:3% of AGI above the applicable threshold; or80% of the amount of itemized deductions otherwise allowable for the tax year.Pease limitations apply to charitable donations, the home mortgage interest deduction, state and local tax deductions and miscellaneous itemized deductions. They do not apply to medical expenses, investment expenses, gambling losses and certain theft and casualty losses.(You can read more about the Pease limitations and how they affect affluent taxpayers here.)Keep in mind that the floor for medical expenses remains 10% of adjusted gross income (AGI) for most taxpayers. Taxpayers over the age of 65 may still use the 7.5% through 2016 – but after that, the favored tax rate will disappear and all taxpayers will be subject to the 10% floor.The personal exemption amount for 2016 is $4,050, up from $4,000 in 2015. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)Phaseouts apply as follows:In years past, the AMT was subject to a last minute scramble by Congress to “patch” the exemption but as part of the American Taxpayer Relief Act of 2012 (ATRA), the AMT exemption amounts are permanently adjusted for inflation – that’s why you now see it in this list. The AMT exemption amounts are as follows:The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. For 2016, the threshold for the kiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax – is $1,050. All unearned income in excess of $2,100 is taxed at the parent’s tax rate.Some tax credits are also adjusted for 2016. Some of the most common tax credits are:Earned Income Tax Credit (EITC). For 2016, the maximum EITC amount available is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.Child & Dependent Care Credit. For 2016, the value used to determine the amount of credit that may be refundable is $3,000 (the credit amount has not changed). Keep in mind that this is the value of the expenses used to determine the credit and not the actual amount of the credit.Adoption Credit. For 2016, the credit allowed for an adoption of a child with special needs is $13,460, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,460. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $201,920 and completely phased out for taxpayers with MAGI of $241,920 or more.Hope Scholarship Credit. The Hope Scholarship Credit for 2016 will remain an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. That means that the maximum Hope Scholarship Credit allowable for 2016 is $2,500. Income restrictions do apply and for 2016, those kick in for taxpayers with modified adjusted gross income (MAGI) in excess of $80,000 ($160,000 for a joint return).Lifetime Learning Credit. As with the Hope Scholarship Credit, income restrictions apply to the Lifetime Learning Credit. For 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.Changes were also made to certain tax deductions, deferrals & exclusions for 2016. You’ll find some of the most common here:Student Loan Interest Deduction. For 2016, the maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($160,000 or more for joint returns).Foreign Earned Income Exclusion. For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.Transportation and Parking Benefits. For 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.Medical Savings Accounts. For 2016, participants who have self-only coverage in a Medical Savings Account are subject to an annual deductible that is not less than $2,250 (up from $2,200 for tax year 2015) but not more than $3,350 (up from $3,300 for tax year 2015). For self-only coverage the maximum out of pocket expense amount remains at $4,450. For 2016 participants with family coverage, the floor for the annual deductible remains as it was at $4,450 (the same as in 2015); however the deductible cannot be more than $6,700 (up $50 from the limit for tax year 2015). For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.You can see how early predictions for those 2016 tax rates stacked up here.More cost-of-living and other adjustments are available through Rev. Proc. 2015-53.And for a peek at the retirement contribution limits for 401(k) plans in 2016 and more, check out Ashlea Ebeling’s related post.Want more taxgirl goodness? Pick your poison: follow me on twitter, hang out on Facebook and Google, play on Pinterest or check out my YouTube channel. 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