Federal Tax Calculator
What's the first thing you should do to avoid fines and penalties from incorrect payroll tax calculations? Check our tables for the most up-to-date federal rates and formulas.
Our Formula For Accurate Taxes.
2008 Federal Income Tax Withholding
Effective January 1, 2008, the I.R.S. revised the federal income tax withholding tables that apply to wages paid through December, 2008. Also, the withholding exemption allowance amount used with the percentage method income tax withholding tables were increased. For the year 2008, the value of one withholding exemption allowance is $3,500 (up from $3,400 in 2007). On a weekly payroll basis the amount is $67.31 (up from $65.38 in 2007.)
|Married filing jointly:||$10,900|
|Head of household:||$8,000|
|Married filing separately:||$5,450|
|For 2008 the tax rates are:||10.0%|
2008 Social Security / Medicare Taxes
The 2008 Social Security (ASDI) taxable wage limit increases to $102,000 compared to $97,500 in 2007. However, the Social Security tax rate remains unchanged at 6.2%. Thus, the maximum employee tax in 2008 increases to $6,324.00 from $6,045.00 in 2007. The contribution of the employer matches the employee's contribution..
The 2008 Medicare taxable wage limit continues to be unlimited, and the Medicare tax rate remains unchanged at 1.45%. The employer's contribution matches the contribution of the employee.
Supplemental Wage Withholding
Supplemental wages are compensation paid in addition to an employee's regular wages. They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a non-accountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. See Treasury Decision 9276 for additional guidance for wages paid after January 1, 2007. You can find Treasury Decision 9276 on page 423 of Internal Revenue Bulletin 2006-37.
Importantly, on October 22, 2004, President Bush signed into law an alternative flat withholding tax rate of 35% applicable to the extent that accumulated supplemental wages paid to any one employee during the calendar year exceed $1,000,000. This alternative rate became effective January 1, 2005. However, accumulated supplemental pay of $1 million or less, if subject to flat rate withholding, may continue to be taxed at the 25% rate.
Earned Income Credit
The Earned Income Credit (EIC) is available to qualifying low-income workers. Two factors determine the amount of an individual's EIC: the number of qualifying children and the individual's earned income. The credit is phased out when income exceeds specific thresholds. Here are the maximum credits and phase-out thresholds for 2008:
With no qualifying child: the maximum Earned Income Credit amount is $438. The credit is progressively phased out and earned income and adjusted gross income (AGI) must each be less than $12,880 ($15,880 for married filing jointly).
With one qualifying child: the maximum Earned Income Credit amount is $2,917. The credit is progressively phased out and earned income and adjusted gross income (AGI) must each be less than $33,995 ($36,995 for married filing jointly).
With two or more qualifying children: the maximum Earned Income Credit amount is $4,824. The credit is progressively phased out and earned income and adjusted gross income (AGI) must be less than $38,646 ($41,646 for married filing jointly).
Investment income limit: The Earned Income Credit is not available to workers who have certain investment income of more than $2,950 in 2008.
The EIC is a credit for certain workers. It reduces the tax owed. It may give the worker a refund even if the worker owes no tax.
The Earned Income Credit can be provided through a lump-sum payment (tax credit or refund), or partial advance payments in the employee's regular paychecks. (SEE BELOW: Advance Earned Income Credit)
Advance Earned Income Credit
Eligible employees who wish to receive ADVANCE payments of the Earned Income Credit must submit a completed Form W-5 to their employer. There are three tables for determining the applicable advance payment amount. For 2007, the payment tables are identified as:
- Single, Head of Household and Qualifying Widow(er)
- Married Filing Jointly with spouse not filing a Certificate (Form W-5), and
- Married Filing Jointly with spouse also filing a Certificate.
Married employees filing Forms 1040 separately are not eligible to claim the Earned Income Credit. No carry over into subsequent years is allowed. Employee eligibility for advance earned income credit must be re-established each year.
The maximum ADVANCE payment a qualified Earned Income Credit recipient may receive is $1,750, compared to $$1,712 in 2007. (Single or Married Without Spouse Filing Certificate). The remaining amount of credit can be claimed by the employee on his or her annual tax return (Form 1040). For married employees who jointly file Form 1040, and each file Form W-5 with their respective employer, the 2007 ADVANCE payment limit for each spouse is $875.
However, to qualify for ADVANCE payments, a JOINT filer must have one qualified child and expect to have earned income and adjusted gross income of less than $36,995 for 2008. For a non-joint filer to qualify for ADVANCE payments, he or she must have at least one qualified child and expect 2008 earned income and adjusted gross income of less than $33,995. For two or more qualifying children, to qualify the expected 2008 earned income and adjusted gross income must each be less than $8,646 ($41,646 if married filing jointly).
If "back-up" withholding applies to payments made in 2008, the tax rate used is the flat withholding rate of 28.0%.
Educational Assistance Benefit
Effective for courses beginning January 1, 2002 or later, the annual exclusion from wages is $5,250. In addition, the exclusion applies to graduate as well as undergraduate courses.
According to the IRS, "Employers offering tax-free educational assistance are required to have a written plan describing the benefit and the terms under which it is available." (Notice 97-60 Exclusion For Employer-Provided Educational Assistance). An employer may pay for any form of instruction or training that improves or develops an individual's capabilities, whether or not job-related or part of a degree program under a qualified education assistance program without defeating the non-taxable status of the benefit supplied to the employee. For more information see Internal Revenue Service Publication 970
Adoption Assistance Benefit
Excludable from Federal income tax withholding are employer payments or reimbursements under an adoption assistance program for an employee's qualified adoption expenses. For 2007, up to $11,390 per qualifying child may be excluded (compared to $10,960 in 2006). However, such payments are not excludable from Social Security, Medicare and UTA taxes. Also, the starting point of the taxpayer's income phase-out range increases to $170,820 of modified gross income, and is completely phased out for taxpayers with modified gross income of $210,820 or more.
Transportation Benefit Exemption
For year 2007, the tax-exemption limit for employer-provided mass transit passes, tokens, fare cards, etc., and highway vanpool transportation, increases to $115 per month (compared to $110 per month in 2007). At the same time, the monthly tax-exemption limit for employer-provided qualified parking benefits increases to $220, compared to $215 monthly in year 2007.
The exemptions apply to Federal income, Social Security and Medicare tax withholding, as well as FUTA taxes. These exemption limits apply even if the value of the employer-provided benefit exceeds the $115 or $220 limits. Only the excess benefit would be taxed.
Employers also may offer a plan that allows employees to defer tax-free amounts to pay for transit passes and/or parking. Where employee salary reduction is involved, and the amount deducted exceeds the employee's ACTUAL monthly qualified transportation benefit/expense, the unused compensation reduction may be carried over to be used in subsequent periods. In any case, the value of qualified transportation fringe benefits must be calculated on a monthly basis.
Domestic Employee Social Security Coverage Threshold
The wages of a "nanny" or other household employee become subject to Social Security and Medicare taxes only if they equal or exceed a certain threshold amount for the year. For 2008, the annual threshold amount is $1,600, up from $1,500 in 2007.
Dependent Care Assistance Benefit
Employers may exclude the value of benefits provided to an employee under a dependent care assistance program, from the employee's wages, if the employer reasonably believes that the employee can exclude the benefits from gross income. An employee can generally exclude from gross income annually up to $5,000 of benefits received under a dependent care program. This limit is reduced to $2,500 for married employees filing separate returns.
Contribution Limits for Health Savings Accounts (HSAs)
In 2008, the maximum contribution that can be made for individuals with single coverage will be $2,900, up from $2,850 this year, and the maximum contribution for family coverage will rise to $5,800, up from $5,650, according to the document posted.
Additionally, the maximum out-of-pocket expense — including deductibles — that individuals with single coverage can be required to pay will rise to $5,600 next year, up from $5,500 in 2007, and to $11,200 for family coverage.
Federal Income Tax Withholding For Non-Res Alien Employees
Effective January 1, 2006 and after, non-resident aliens employed in the United States should submit a Form W-4 with marital status as "Single," and claim a maximum of one withholding allowance only. "Non-Resident Alien" or "NRA" should be written on the dotted line of line 6 of Form W-4. The employer, will be required to add an additional amount, $51.00 weekly ($2,650 annually), to the Federal taxable wages for the sole purpose of determining the correct amount of withholding. This additional amount is not reportable on Form W-2, and should not be used to calculate FICA or TA tax. You can find the most up-to-date information in the IRS Publication 515.
New 2 1/2-Month Grace Period for FSA Funds
Under the previous rules, employees who set pre-tax wage dollars aside under a dependent care or medical flexible spending arrangement () were required to use those funds for qualified dependent care / medical expenses by December 31, or forfeit the balances in their accounts. This was the so-called "use-it-or-lose-it" rule. On May 18, 2005, the I.R.S. issued Notice 2005-42, allowing employers, at their option, to modify their FSAs to extend the deadline for using health and dependent care FSA funds for up to 2 1/2 months after the end of the plan year. The extension is effective beginning with the 2005 plan year, but only if the amendment is made to the plan document before the end of the respective cafeteria plan year.
Article from www.adp.com.