Listener Request: What is Income Tax and How Does it Work? | Ep. 6

• Listener asked how taxes are calculated and taken from each paycheck.

• Tiffany previously worked in payroll and handled both employee and employer tax payments.

• The number of exemptions claimed on your W-4 determines how much tax is withheld from each paycheck.

The more exemptions you put on the W-4 form, the less taxes that will be taken out.

• Tiffany recommends using the worksheet on the form rather than defaulting to zero or one.

• Over-withholding gives the government an interest-free loan until you file your taxes.

When you get a big tax refund, it's because you pay too much in income taxes.

• Employers must match the amount withheld from your paycheck dollar-for-dollar when sending taxes to the government.

They're sending $400 just for you, just for that paycheck to the federal government.

• Taxes fund Social Security, Medicaid, Medicare, and food stamps.

• Worker shortages threaten the long-term funding of these programs.

• You can change your exemptions at any time. Life events like marriage or having children should trigger an update.

Make sure you change your W-4 exemptions if applicable, because it can make a huge difference in your paychecks.