Tax Withholding Guide For High Income Individuals

The tax withholding guide for high income individuals is higher than for other income earners in the United States. High income earners are subject to a higher rate of taxation than other income earners. The number of exemptions claimed and the filing status you choose determines the amount of tax withholding. This is established when you become employed and complete the Form W-4, entitled, Employee’s Withholding Allowance Certificate.

Exemptions Allowed

The W-4 is maintained by your employer and permits you to designate certain exemptions for Federal tax withholding.  The exemptions that are allowed on the form include:

•Personal exemption if you cannot be claimed on someone else’s tax return.

•Exemption for being married with a non-working spouse.

•Exemption for a spouse, although if the spouse works or if you work more than one job, it is suggested that you mark 0 for this box to avoid underreporting.

•Exemptions for any dependents, such as children.

•Exemption for head of household.

•Exemption for child and dependent expense exceeding $1,800.

•Exemption for Child Tax Credit

The number of exemptions and manner in which you file will determine the amount of income taxes withheld at either 10, 15, 25, 28, 33 or 35 percent.

Income Tax Rates based on Filing Status

The top tax rate in the United States is 35 percent.  This is for those incomes that are at the top of the table for the various Federal income tax filing statuses.

•Single filers - $372,951
•Married, filing jointly - $372,951
•Married, filing separately - $186,476
•Head of household filers - $372,951

The reason why the amount for married filing separately is different from the other filing classes is that presumably you have a dual-earning couple.  If you multiply the amount times 2, you will reach $372,951.

FICA Withholding

In addition to the withholding amount based on an individual’s tax status, an amount for the Federal Insurance Contributions Act tax (FICA) is withheld. FICA is used to pay for Social Security retirement and disability benefits and Medicare health insurance. 

The current percent that is withheld from your paycheck is 1.45 percent for Medicare and 6.2 percent for Social Security retirement and disability. This amount is matched by your employer for a total withholding of 15.3 percent.  If you are self-employed, the amount withheld is 15.3 percent (7.65 employee plus 7.65 employer-match equals 15.3). The FICA withholding in 2009 is only for the first $106,800 of earned income, or $8,170. Every dollar over $106,800 is not subject to FICA withholding.

There are plenty of resources and individuals available to you as a high income earner to lower you income tax rate or increase your deductions and credits in order to lessen the impact of your tax withholding. An annual review of your financial situation with an accountant or financial professional will help you determine the course of action that is appropriate for your situation.
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