Question

what does it mean by “Withholding for Federal income tax was $37,750 and the appropriate FICA and Medicare tax withholding was done.

and how to file it in income tax return 2018

Answer 1

Ans

Withholding tax

In the US, all the income earners are obliged to pay income tax to the federal, state, or local tax authorities. This tax collected is used to provide various benefits and for the well being of the residents. So the tax authorities require the employers to withhold the certain amount of income of the employees as tax. This is basically done to ensure that all the working residents are consistently paying their income taxes.

So withholding tax means that a portion of the employees wage is not included in his/her paycheck, rather it is directly deducted by the employer of the employee and paid to the tax authorities.

Withholding tax reduces the income on the paycheck and it also reduces the amount of the income tax that is to be paid by the person when they submit the annual return, since a part is already remitted by the employer when it withholds the tax.

Form W-4

Before withholding is done, whenever an employee joins a job he is required to fill a form W-4. This form mentions all the details such as employee's income, marital status, number of dependents, and number of jobs all determine the amount withheld. So when the withholding is done the amount that is to be withheld is given by the employee itself.

So each employee withholds different amount and an employee can adjust the amount that is to be withhold as per his wish.

Our case: In our case it is given that "Withholding for Federal income tax was $37,750" this simply means that the amount of $37,750 was withhold tax directly remitted by the employer on behalf of the employee to in the income tax authorities. So this much amount is already paid as tax to federal government. and now employee has to pay whatever is left as the income tax while filing annual return.

While filing returns normal return is to be filed, because the Withhold tax is directly remitted by the employer.

Meaning of "the appropriate FICA and Medicare tax withholding was done."

When employers withhold tax the most important part is the payment of what is called as FICA taxes. These are taxes that require withholding from an employee's wages as well as an employer's portion of the taxes that must be paid.

The FICA tax includes contributions to two federal programs, Social Security and Medicare.

Contribution of each is as follows

• 6.2 percent Social Security tax;
• 1.45 percent Medicare tax (the “regular” Medicare tax)
• Since 2013, employers are required to withhold an extra 0.9% on money when the employee earns over $200,000.

So employers are also required to match the amount of the tax for every employee, so that the total FICA contribution is 15.3 percent. Self employed person is required to pay both the employer as well as employee portions of the FICA tax.

In lehman terms, if you withhold a 6.2 percent Social Security tax from your employee’s wages then the employer will pay an additional 6.2 percent as share of the tax (6.2 employee portion + 6.2 employer portion = 12.4 percent total).

Also, you withhold a 1.45 percent Medicare tax from your employee’s wages then employer has to pay an additional 1.45 percent as his share so that 1.45 employee portion + 1.45 employer portion = 2.9 percent total.

So the total of all four portions is 15.3 percent

(6.2% employee portion of Social Security + 6.2% employer portion of Social Security + 1.45% employee portion of Medicare + 1.45% employer portion of Medicare = 15.3% ).

"the appropriate FICA and Medicare tax withholding was done."This means that FICA and medicare tax is already withhold from employer side which is 7.65% of his share. The rest 7.65% is withhold from employee's wage.

So the withholding of $37750 is done by the employer which directly remitted to the tax authorities, in this case federal income tax.