Understanding Employee Taxes

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Understanding How Taxes Are Withheld Based on Employee Tax Setups

 

Federal Tax (W-4 Information)

We often get questions about how employee taxes are calculated and withheld. It all starts with the information provided on each employee’s Form W-4, which tells us how to withhold federal income tax from their pay.

Here’s a simple breakdown:

  • The W-4 Form is filled out by your employee and includes details like their filing status (e.g., single, married), any dependents, and whether they want additional amounts withheld.
  • This information is used to calculate federal tax withholding based on IRS formulas. We do not determine the amount of tax withheld — it is calculated based on the W-4 and IRS guidelines.
  • Other taxes, such as Social Security and Medicare (FICA), are set at fixed percentages and apply equally regardless of the W-4.

Important Notes:

  • If an employee is concerned about how much is being withheld, they should review and update their W-4. This can be done anytime during the year.
  • The IRS also provides a helpful Tax Withholding Estimator for employees who want to make sure they’re on track.

 

Federal Tax Withholding: Important W-4 Update

With the IRS’s updated W-4 form, you should no longer claim yourself as a dependent. The new form is designed differently from older versions and does not use allowances.

What’s Correct:

  • Complete Step 1 with your personal information and filing status.

  • Use Step 3 only if you are claiming dependents (e.g., children) — not yourself.

  • Leave Step 3 blank if you have no qualifying dependents.

What’s Not Correct:

  • Do not enter yourself as a dependent in Step 3.

  • Do not use old rules or assumptions from previous W-4 forms.

If you’re unsure how to fill out the new form, we recommend using the IRS Tax Withholding Estimator or speaking with a tax advisor.

Keeping your W-4 accurate helps avoid surprises at tax time and ensures the correct amount is withheld from your paycheck.

 

Claiming Dependent Credits on NY State and Local Tax Forms

When filling out your New York State (IT-2104) tax form, it’s important to understand the rules around claiming dependents to ensure accurate tax withholding.

Who Can Be Claimed as a Dependent:

  • Children under age 17 who live with you and whom you financially support.

  • Other dependents (e.g., older children, parents) if they meet IRS and NYS definitions and you provide more than half of their support.

Who Cannot Be Claimed:

  • Yourself – you cannot claim yourself as a dependent.

  • Spouse – unless you meet specific IRS criteria and they qualify as a dependent (rare cases).

  • Roommates or friends – unless they meet the dependency test (which is uncommon).

Key Notes:

  • On the IT-2104, you can enter the number of dependents you are claiming to reduce your NY State and local tax withholding.

  • These entries should match the number of dependents you will report on your actual tax return.

  • Overclaiming dependents may result in under-withholding and a tax bill at the end of the year.

If you're unsure who qualifies as a dependent, it’s a good idea to refer to the IRS guidelines on dependents or speak with a tax professional.

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