Why Was No Federal Income Tax Withheld From My Paycheck?

Posted by in Taxes | Updated on November 15, 2022
At a Glance: You might have noticed that your federal income tax was not included in your last paycheck. There are a number of reasons why this might happen, including if you’re under the age of 18 and there’s no state income tax.

As a taxpayer, you are probably used to your federal income tax being withheld from your paycheck. However, looking at your payslips, you saw that it was not withheld. While the first instinct would be to be happy that you didn’t have to pay that tax, you can’t help but wonder what happened and whether this will affect you in the future or not – particularly if you can get a refund on those taxes.

So, why was no federal income tax withheld from my paycheck? Is it just an error, or is there a legit reason why you don’t have to pay that tax? Well, this article will clear things up for you.

What Is Federal Income Tax?

The Federal Income Tax is a tax that the IRS (Internal Revenue Services) withholds from your paycheck. This tax will apply to any form of earning that sums up your income, whether it comes for employment or capital gains.

The government uses federal tax money to help the growth of the country and maintain its upkeep. In a way, you can say that the federal income tax is the “rent” that you’ll have to pay for living in that country, to enjoy the benefits, or even to have a nice walk in the park (because, after all, parks are made and kept with government money).

Reasons Why You Might Not Have Paid Federal Income Tax

Now we know that federal taxable income is quite important and that you’ll have to pay it if you wish to help with the flourishing of the country. This makes it even more confusing when you are not asked to pay for it. Here are the most common causes why that might happen:

  • You Didn’t Earn Enough
  • You Are Exempt from Federal Taxes
  • You Live and Work in Different States
  • There’s No Income Tax in Your State
  • There Has Been a Payroll Error

Each of these reasons is explored in more detail below.

You Didn’t Earn Enough

If no federal income tax was withheld from your paycheck, the reason might be quite simple: you didn’t earn enough money for any tax to be withheld. According to some changes in the W-4, Employee Withholding Certificate (find out more about that here), earnings that are too low might not have their income taxes withheld at all.

When it comes to how the withholding is calculated, several other things are taken into consideration as well. This includes your pay frequency, the rate of your payments, the number of dollars for the dependents, as well as your filing status. When deciding whether taxes should be withheld or reduced from your payroll, they will take all those aspects into account.

For example, a person that gets a $1,000 paycheck every week will be taxed differently compared to someone that gets a $1,000 paycheck every month.

Your filing status will also change the way your taxes are withheld. For example, filings from a single person will have more withheld tax compared to someone that is married or is the acting head of a household. Since you will be the one taking charge of your family on a smaller salary, taxes would not be withheld.

You Are Exempt from Federal Taxes

One more reason why the federal income tax was not withheld from your paycheck might be because you are exempt from paying income taxes altogether. If you are not sure whether that is the case or not, you might want to check with your employer’s tax settings and see what their status on exemptions is.

That being said, bear in mind that just because you might be exempt from federal income tax, it doesn’t mean that you are also exempt from all the other taxable wages. Your W2 will show all of your taxable wages, even if you technically don’t have any federal income tax withheld.

You Live and Work in Different States

Withholding tax can get fairly complicated if you work remotely, in a different state than where your employer is found. Each state law on taxes has its own reciprocities and follows special rules when calculating that withheld tax.

For example, a resident of Alabama whose employer is outside of Alabama will not have their federal income tax withheld by Alabama. That being said, the employer will still be subjected to wage taxes by the end of the year. The same thing goes for states like Mississippi or North Dakota.

However, there are states such as Oklahoma that have slightly different rules. If the state where your employer is located withholds state income tax, you won’t have to pay income tax to Oklahoma. However, if the state of your employer doesn’t charge federal income tax, then the state of Oklahoma will charge that tax instead.

There’s No Income Tax in Your State

If the tax was not withheld from your paycheck, it might also be because your state does not charge income tax. If you live in Alaska, Florida, Nevada, Tennessee, South Dakota, New Hampshire, Washington, Texas, or Wyoming, you will not have to pay income taxes. However, they might charge dividends and interests (like New Hampshire does), so you might want to do a little bit of research on that.

States that do not charge income tax will have their own way of raising revenue for the maintenance of their infrastructure. One common way to do so is sales tax. Florida, for instance, takes a 6% tax on sales, whereas Tennessee takes a 9.55% sales tax. Washington charges a 49.4 cent fuel tax for every gallon of gasoline, which is among the nation’s highest rates.

So, if you live in one of the states mentioned above and you see that there is no income tax, don’t stress yourself out. You’ll be paying that tax money one way or another, only that you won’t be paying it through federal income tax.

There Has Been a Payroll Error

So, your state charges taxes, your employer is located in the same state as you, you are not exempt from tax, and you earn enough money every month – yet your federal income tax still wasn’t withheld from your paycheck? If you checked all of the points above, then the answer to that might be a very simple one: there has been an error in your payroll.

For example, your employer might have attempted to withhold the taxes, but they did not give you a correct W-2 form. In that case, you might want to discuss this matter with your employer, so that they might give you the correct W-2 form.

There is a high chance that if you are a taxable person, your employer just made a simple and honest mistake. Perhaps they added the incorrect amount or just forgot to file in that tax altogether. If that were to happen, you need to make sure your employer withholds the right amount for the future.

Why? Because the moment you file for the returns, you’ll owe what your employer should have paid for you. For the state, those are simply unpaid taxes.

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