When you start working for an employer, the first thing you do is fill out a tax withholding form. What you check on the form determines how much is withheld from your paycheck, these are called exemptions. Typically it's 0-3 exemptions. If you claim 0, you'll have more money withheld, which means you typically get a refund when you for your taxes. If you claim 3, you'll keep more money in your paycheck, but could end up owing money when you file your taxes.
Employers pay a payroll tax, so if you send more money to the IRS, then they have to pay a bigger portion. By increasing the exemption of employees, they can decrease their portion of the taxes coming out of your paycheck.
I used to do the payroll taxes for our business. The company only matches SS and Medicare, your exemptions have no bearing on that. The exemptions cover your federal income tax withheld, so if you have less fed tax to pay then they still have to pay that money to you, less exemptions, they send it to the government. Either way they have to pay it out.
Explain this better to non Americans please ?
When you start working for an employer, the first thing you do is fill out a tax withholding form. What you check on the form determines how much is withheld from your paycheck, these are called exemptions. Typically it's 0-3 exemptions. If you claim 0, you'll have more money withheld, which means you typically get a refund when you for your taxes. If you claim 3, you'll keep more money in your paycheck, but could end up owing money when you file your taxes.
Employers pay a payroll tax, so if you send more money to the IRS, then they have to pay a bigger portion. By increasing the exemption of employees, they can decrease their portion of the taxes coming out of your paycheck.
I used to do the payroll taxes for our business. The company only matches SS and Medicare, your exemptions have no bearing on that. The exemptions cover your federal income tax withheld, so if you have less fed tax to pay then they still have to pay that money to you, less exemptions, they send it to the government. Either way they have to pay it out.