Understanding Income Taxes

In the US, taxes fund critical infrastructure and social programs, such as roads, schools, police, and health care. Income taxes are automatically taken out of your paycheck based on an estimate of what you will owe come tax season. Your estimate is based off of how you complete form W-4. If you pay too much during the year, you'll get the extra back when you file your tax return. If you didn’t pay enough, you will owe money when you file your tax return.

Here's a breakdown of what you need to know about your US paycheck and how it's calculated:

Gross Pay Vs. Net Pay

Gross Pay: This is your earnings before any deductions. For example, if your pay rate is $20 per hour and you work 36 hours, your gross pay would be $720.

Net Pay (Take-Home Pay): This is the amount you receive after deductions, like income taxes and insurance. It's your gross pay minus these deductions.

Your net pay is directly deposited into your bank account. Check your pay stub via ADP for a detailed breakdown of wages, taxes, and deductions, accessible from your mobile device or web browser.

Deductions Explained

Taxes: Includes Federal, State, and possibly local taxes, along with Medicare and Social Security contributions.

Insurance: If you enroll in insurance programs (like health, dental, or vision), premiums are deducted from your gross pay, reducing your taxable income.

Supplemental Income

Supplemental income is money paid in addition to regular wages. This includes bonuses, overtime, incentives, and stipends which are often taxed at a higher rate than income tax.

Key Definitions

Insurance: Optional enrollments into medical (health, dental, vision) and life coverage plans. If enrolled, premiums are deducted from your gross pay, which decreases your total taxable income. This is a benefit come tax season as you can only be taxed on taxable income.

IRS (Internal Revenue Service): Enforces income tax laws and collects federal income taxes.

W-4 Form: Tells your employer how much federal tax to withhold from your paycheck. This form asks you about things like how often you get paid, whether you are married, have kids, have other kinds of income or another job, or if your spouse has income. You can update this form through ADP.

W-2 Form: Issued annually, detailing the taxes withheld from your paycheck. It is essential for filing your taxes.

Form 1040: Form used to file an annual federal income tax return to determine if you paid too much and get a refund or if you didn’t pay enough and owe more money.

Tax Season Quick Facts

• All taxpayers must file a tax return (Form 1040) with the IRS each year.
• The tax filing deadline is April 15th.
• Health Carousel will provide you with Form W-2 Wage and Tax Statement, which accumulates the total taxable wages paid to you in the year.
• W-2s are issued by January 31st.

Additional Tips and Resources

Always keep a record of your tax documents; these are crucial, especially if you're adjusting your immigration status or in case of an IRS audit.

Explore these resources to understand more about taxes (Note: These are not substitutes for professional tax advice):

• The Basics of Taxes and Tax Preparation
• Completing Form W-4
• Updating Direct Deposit in ADP: A Step-by-Step Guide

If you are on an H1B visa and have specific questions, please contact your International Employee Supervisor for further guidance. For detailed tax queries, consult a tax professional.