Federal Income Tax
The US federal government imposes income tax on wages and salaries. This is the tax that is calculated on the Form 1040 each year. The income tax rate gradually or progressively becomes higher as income rises, and various deductions, exemptions, or tax credits can offset the federal income tax. Federal income tax is deducted from an employee's total compensation as payroll withholding, but this withholding amount might be higher or lower than the actual amount of federal tax due to the government. The actual amount of federal income tax is calculated on the Form 1040. An employee can adjust upwards or downwards the amount of federal income tax deducted from each paycheck by submitting Form W-4 to the employer. Adjusting your withholding will effect only federal and state income tax withholding, not your Social Security and Medicare withholding.
Employer Only Taxes on Salary and Wages
In addition to taxes that are imposed on the employee, the employer incurs additional taxes on wages.
Overtime, Bonuses and Other Supplemental Wages
Bonuses and overtime is taxed in the same way that wages are. Since the payroll withholding tables are graduated based on income, overtime and bonuses might attract higher federal and state income tax withholding compared to your regular pay.
Switching Employers or Working for More than One Employer in a Year
Because of the graduated tax rates built into the payroll withholding tables issued by the IRS, when an employee starts working for a new employer or takes on a second job, there's the possibility that federal and state income tax withholding might be lower than the amount of tax actually due. Employees working a second job can mitigate against this possibility by claiming zero withholding allowances on their W-4, or by requesting that additional tax be withheld over and above the withholding amount.
Similarly, there is the possibility that an employee might overpay Social Security taxes if, when combined, the wages from several jobs exceeds the Social Security wage base. In that case, the employee will receive the overpaid Social Security tax as an additional refund when filing a tax return.
Reporting Wage and Salary Income
There are three reporting mechanisms for wage and salary income. First, employers report your pay and various tax deductions and other payroll deduction on a pay stub, which is issued to the employee at the same time that the wages are paid. Secondly, after the year is over the employer will report the total amount of wage income and tax withholding on Form W-2. A copy of the W-2 is also sent to the Social Security Administration and to the IRS. Thirdly, an employee will report their wage income from all jobs on their annual federal and state tax returns.