Federal income tax (FIT) is withheld from employee earnings each payroll. Gusto calculates employees' federal income tax using the tax withholding information entered in Gusto and the current IRS tax tables—elections can be changed at any time in Gusto.
For an in-depth description of the tax calculations, check out IRS Publication 15A.
Q: Why wasn't federal income tax withheld on a paycheck?
A: Sometimes the IRS calculates that $0 taxes need to be withheld from a paycheck—this most often happens when you're not earning enough in gross wages for taxes to be withheld.
Use the IRS withholding calculator above to help confirm the expected amount of federal income tax to withhold based on your personal tax settings. These include the factors listed at the top of this article.
Q: An employee's taxes were over or under withheld on a paycheck—what do they need to do?
A: State and federal tax withholding amounts get reconciled through personal tax returns at the end of the year. This means if taxes were over-withheld, employees may see larger tax refunds. Alternatively, if taxes were under-withheld, they may owe more at the end of the year.
Employees can always update their W-4 elections in Gusto to try to modify the amount(s) being withheld per paycheck—check with a CPA or accounting professional for explicit advice about what selections to make.