Question

The amount of income tax withheld from each employee's total earnings is determined from the number of withholding allowances and by the employee's marital status. What factors determine the amount of income tax withheld from an employee's total earnings?

1) Number of withholding allowances
2) Employee's marital status
3) Both number of withholding allowances and employee's marital status
4) None of the above

Answer 1

The amount of income tax withheld from an employee's earnings is determined by the number of withholding allowances and the employee's marital status, as indicated by the employee's W-4 form. Correct reporting ensures appropriate tax withholding, avoiding underpayment or overpayment.

Step-by-step explanation:

The factors that determine the amount of income tax withheld from an employee's total earnings are indeed the number of withholding allowances and the employee's marital status. These withholding allowances are claimed on the W-4 form that the employee files with the employer, which helps the employer calculate how much federal income tax to withhold from the employee's paychecks throughout the year. It's important to accurately report the number of allowances and marital status to avoid underpayment or overpayment of taxes.

Moreover, taxable income is calculated as adjusted gross income minus any deductions and exemptions the employee may have. The withholding tax, or pay-as-you-earn tax, is an advance payment towards the employee’s yearly income tax liability. Adjustments to withholding can be made to account for additional income, deductions, or eligible tax credits, to better align the withheld amount with the actual end-of-year tax liability.