Payroll deductions perform a valuable service: Without them, taxpayers themselves would be responsible for regularly sending in tax payments to various tax agencies as they earn their income throughout the year. Jerome Borison, who as an associate professor at the University of Denver’s Sturm College of Law teaches courses focused on taxes, said taxpayers aren’t very good at that.
Those who -- like the self-employed -- have no money deducted from their income for taxes often encounter problems when it's time to file their income tax returns. “People (often) end up finding they owe the government a lot of money at the end of the year,” Borison said.
The government established the system of payroll withholding to combat “financial dysfunctionality” among taxpayers, ensuring a steady flow of money to the U.S. Treasury, Borison said.
The payroll withholding system contributes $1.7 trillion -- nearly 72 percent -- of the annual revenue of the Treasury, according to the website nationalpayrollweek.com.
Still, you may wonder why so much comes out of your pay, where that money goes, and what can be done to change the deducted amount.
You can kind of play around with the W-4 to accommodate what your actual tax situation is.
- Jerome Borison, associate professor, University of Denver’s Sturm College of Law