Depending on the classification of a worker (i.e. independent contractor, employee…etc.), an individual’s paycheck is likely subject to various withholdings and/ or deductions. Every taxpayer in the United States is subject to both federal and state taxes, in addition to other fees such as Social Security tax and Medicare tax. Any individual that works and receives a paycheck should have a basic understanding of amount deducted from each paycheck and where the deductions and/ or withholdings are allocated. The amount of money deducted will depend on several factors and vary from person to person.
The amount of taxes that an individual is required to pay depends on the tax bracket that he or she falls under. Income thresholds separate tax brackets, and each have different tax percentage rates. It is important to note that an individual that falls within the highest tax bracket (meaning he or she must pay the greatest percentage on his or her income) only do so on the percentage of money that exceeds the maximum threshold from the previous bracket. This means that even if you fall in a tax bracket, you are not taxed at the highest rate on all of your income. Rather, the brackets are essentially broken into chunks that distinguish the percentage of tax owed within that corresponding bracket. Hence, an individual that falls into the highest tax bracket he or she only pays the corresponding tax percentage on the money that exceeds the previous tax bracket threshold, and money that is within the lowered tiered brackets is taxed at the lower corresponding percentage.
California Labor Code
The California Labor Code stipulates clear parameters for employers to make authorized, limited deductions. As such, employers are only allowed to make deductions if they meet the following criteria:
- Required by state and/ or federal law
- Used to cover the cost of insurance premiums, hospital bills, and/ or medical dues
- Used as contribution towards health and welfare and/ or pension plan funds, specifically authorized by a collective wage agreement
This code assures employers ability to withhold wages as payment for taxes without requiring a prior agreement with the employee. However, it also prohibits employers from eluding state and federal laws as it places limits the amount an employer is permitted to deduct.
Types of Deductions
In California, in 2019, any worker that was classified as an employee had 6.2% of their earning withheld for Social Security tax from each pay period. An additional 1.45% was deducted from each employee’s paycheck as payment for Medicare tax. Individuals that earn an excess of $200,000.00 were also subject to 0.9% Medicare surtax. In 2019, California required a 0.1% withholding for each employee’s wages for employee training tax. Many employers offer additional benefits that can affect the amount of money deducted from one’s paycheck. For example, some employers allow retirement contributions to be directly taken from one’s paycheck, which would reduce one’s immediate take-home pay. Other benefits such as flexible spending account contributions and health insurance premiums can also be directly deducted from one’s paycheck.
For Further Information
If you follow your instincts and are clear with your needs you will likely find an accountant that is an excellent fit. While the task to connect with the right accountant may seem overwhelming, please keep in mind it will be worth it in the long run. The financial guidance that a good accountant will provide during one’s lifetime can result in significant financial gain. With the full range of accounting services Allman & Allman APAC provide, we are certainly equipped with the expertise for which you may be in need. Seeking guidance from our firm will proved you the opportunity to work with individuals armed with broad and deep financial knowledge, able to provide advice on a wide range of issues. As a full-service public accounting firm, our professional services will surely help you succeed and thrive. Please feel free to reach out to Allman & Allman APAC via email at Genna@apapd.com or via phone at 760-406-5056 to discuss your situation and find out how we can help you grow. We look forward to hearing from you.
“California Paycheck Calculator.” SmartAsset, www.smartasset.com/taxes/california-paycheck-calculator#california/overall.
“California Payroll Tax: Breaking Down the Basics.” Squar Milner, 9 Oct. 2019, www.squarmilner.com/california-payroll-tax/.
“California Salary Paycheck Calculator.” Gusto, www.gusto.com/tools/salary-paycheck-calculator-california.
Murray, Jean. “How to Calculate Paycheck Withholding and Deductions- Hint: It’s Easy.” The Balance Small Business, The Balance Small Business, 20 Nov. 2019, www.thebalancesmb.com/how-to-calculate-deductions-from-employee-paychecks-398721.
Orem, Tina. “2019-2020 Federal Income Tax Brackets and Tax Rates.” NerdWallet, 5 Feb. 2020, www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/.