ToddL99
Expert Alumni

Retirement tax questions

If you are referring to Box 2 of your Form W-2, then it means your employer did not withhold any federal income tax from your pay.

 

This can occur when your filing status, claimed withholding allowances or income level indicate that you aren't required to have income tax withheld.

 

Federal income tax is based on the employee’s filing status, number of allowances/exemptions, earnings, and the IRS withholding tax tables. All these factors determine the employee’s federal income tax withholding amount. The employee can earn a small amount of income but because he has few exemptions, he owes federal income tax. He can earn a large income but has so many exemptions that he pays no federal income tax. In the latter case, unless the employee truly is allowed to claim that many exemptions, he can end up owing the IRS. If the employee qualifies for exempt status, then no federal income tax should be withheld. State income tax withholding is dependent on similar factors. Furthermore, FICA taxes are based on a set percentage, which must be withheld, regardless of income amount.

 

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