Federal Withholding Tax vs. State Withholding Tax: What's the Difference?

Federal Withholding Tax vs. State Withholding Tax: An Overview

In simplest terms, the amount of withholding from your paycheck is an estimate of how much you'll owe in taxes at year's end based upon your level of income and other factors. 

That number is divided by the number of pay periods you have in a year or, in the case of hourly employees, by how many hours you work in a pay period.

If it's likely that you'll owe the government $10,000 and you're paid a weekly salary, $192.30 will be withheld from each of your paychecks and forwarded to the government on your behalf: $10,000 divided by 52.

There's very little difference between state and federal withholding taxes. The chief distinction is that state withholding is based on state-level taxable income, while federal withholding is based on federal taxable dollars. 

State withholding rules tend to vary among the states, while federal withholding rules are consistent everywhere throughout the United States.

States can only withhold amounts for their own income taxes, and not all states impose them.

Virtually all U.S. citizens are subject to federal withholding unless they had no tax liability at all in the previous year and they don't expect a tax liability in the current year.

Before the withholding system was implemented, income taxes were due at a specific time of year, initially in March. 

Taxpayers had to pay in full on that date, which made them keenly aware of their tax burden. 

When taxpayers have their taxes automatically deducted throughout the year through withholding, they don't feel the big bite all at once.

For most Americans, every paycheck has lines that show federal taxes withheld and state taxes withheld. If you earn $1,000 in a paycheck, but the government withholds $250, you only get to take home $750. 

The government sends you a tax refund if you had more money withheld than you should have paid in taxes at the end of the year.

















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