Federal Tax Withholding
When a company hires a new employee, he/she is asked to fill out a W-4 tax withholding form. Among other things, this form will ask you, the taxpayer, to indicate the number of federal exemptions that you wish to claim, along with your tax filing status (married, single). Based on your answers to these questions (and others) the payroll office at your place of employment will have the information necessary to start processing your paychecks and determining the proper amount of federal tax withholding.
Unless you specify a special method of federal tax withholding (the options vary from one employer to the next), you can safely assume that the federal tax tables will be used to compute your taxes. If your filing status is single, you can expect your tax withholding to be greater than if you file as married (assuming everything else is equal). You will also experience greater federal tax withholding if you claim fewer exemptions.
Federal tax tables are designed in such a way that, more often then not, you will have excessive federal taxes withheld. This is especially true if you work in an occupation where your earnings fluctuate widely. If you get a constant salary amount, your federal withholding will remain steady throughout the year.
However, if you receive other forms of income (like sales commissions) you will notice that the federal withholding is often disproportionate when you make a large sum of money. The reason is because the federal tax tables, when they make the computation of tax, assume that the taxable gross that you just earned is your normal rate of pay. It doesn't matter if it really is your normal rate or not. The tax table assume that it is normal, and it withholds the tax that would be expected for someone who makes that level of pay on a constant basis.
For example, if you are a single salesman who claims zero exemptions and makes a weekly draw of $500, your federal withholding on the weekly pay might only be $60. However, if you get a commission check for $2,000, and your payroll office processes the pay based on your normal pay type (weekly, in this example), you can expect your federal tax withholding to increase exponentially, up to nearly $500 dollars. Your gross pay has increased only four times, but your federal withholding has gone up by more than eight times. That's because the higher rate of pay has placed you in a higher tax bracket, based on the assumption that this is your normal rate of pay.
