What Gets Deducted and Why
Payroll tax deductions come out of your gross pay before you see the money. The main ones are federal income tax, Social Security tax (6.2% of your wages), and Medicare tax (1.45% of your wages). Your employer sends these to the IRS on your behalf. Some states and cities also deduct income tax. The amount of federal income tax withheld depends on what you told your employer on your W-4 form — the more allowances you claimed, the less gets taken out.
Your employer does not choose how much to withhold. They use IRS tables that match your filing status, pay frequency, and W-4 entries. If you claimed zero allowances, more comes out. If you claimed ten, less comes out. The goal is to have roughly the right amount withheld by December 31 so you do not owe a large bill or get a huge refund when you file taxes.
Key Takeaways
- Social Security and Medicare taxes are fixed percentages (6.2% and 1.45%) that come out of every paycheck up to an annual wage cap for Social Security.
- Federal income tax withholding is based on your W-4 form, which you fill out when you start a job or update during the year.
- Your pay stub shows gross pay, each deduction, and net pay — the amount you actually receive.
- State and local income taxes vary by location and are calculated separately from federal withholding.
- You can adjust your withholding mid-year by submitting a new W-4 to your employer if your life circumstances change.
How Federal Income Tax Withholding Is Calculated
The IRS publishes withholding tables each year. Your employer looks up your filing status (single, married, head of household), your pay frequency (weekly, biweekly, monthly), and the number of allowances you claimed on your W-4. The table tells them a dollar amount to withhold from that paycheck. This is not a percentage — it is a specific amount based on your expected annual income and tax bracket.
If you earn $1,200 biweekly, claim married filing jointly with two allowances, your employer finds that row and column in the IRS table and withholds the amount listed — perhaps $95. The next pay period, the same calculation happens again. Over 26 pay periods, the total withheld is meant to cover your annual federal income tax liability.
The W-4 form has changed. The current version (as of 2020) does not use "allowances" in the old sense. Instead, you enter dollar amounts for other income, dependents, and tax credits. Your employer's payroll software converts this into a withholding amount using the same IRS tables.
Social Security and Medicare Tax Calculations
These two are straightforward percentages. Social Security tax is 6.2% of your wages, and your employer also pays 6.2% (12.4% total, split between you and them). Medicare tax is 1.45% of your wages, and your employer also pays 1.45% (2.9% total). These come out of every paycheck with no exceptions.
Social Security has a wage cap. In 2024, you stop paying Social Security tax once you earn $168,600 in a calendar year. Medicare has no cap. If you earn over $200,000 (single) or $250,000 (married filing jointly), you pay an additional 0.9% Medicare tax on the amount above that threshold. Your employer withholds this automatically if your pay crosses that line.
These percentages are the same whether you earn $30,000 or $300,000 per year. The math is: gross pay × 0.062 for Social Security, and gross pay × 0.0145 for Medicare. If you earn $2,000 in a pay period, Social Security withholding is $124 and Medicare is $29.
State and Local Income Tax Deductions
Not all states have income tax. Nine states have none: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). If you live in one of these, you have no state income tax withholding.
States that do tax income use their own withholding forms and tables. You may fill out a state W-4 equivalent when you start a job. Some states use a percentage of federal withholding; others use their own calculation. A few cities (New York City, Philadelphia, and others) also withhold local income tax. Your pay stub will show each deduction separately.
State withholding rates and rules change year to year. If you move to a new state mid-year, you may need to update your withholding forms with your employer. Some states allow you to claim dependents or credits that reduce withholding; others do not.
Reading Your Pay Stub
Your pay stub breaks down every deduction. It shows gross pay (what you earned before anything comes out), then lists federal income tax, Social Security, Medicare, state income tax, and any local taxes. Below that are any voluntary deductions like health insurance premiums or 401(k) contributions. At the bottom is net pay — the amount deposited into your bank account.
The pay stub also shows year-to-date totals. If you have worked 26 pay periods and your year-to-date federal withholding is $2,470, you can divide by 26 to see the average per paycheck ($95). This helps you spot whether your withholding is on track. If you expect to owe money at tax time, you may want to increase withholding. If you expect a large refund, you may want to decrease it.
Some employers provide pay stubs in paper form; others use online portals. You should receive one with each paycheck. Keep them for your records — they are proof of income and withholding when you file taxes or apply for loans.
Adjusting Your Withholding During the Year
You do not have to wait until next year to change your withholding. If your circumstances change — you get married, have a child, take a second job, or expect a large bonus — you can submit a new W-4 to your employer at any time. The change takes effect on the next paycheck or within a few pay periods, depending on your employer's payroll schedule.
Common reasons to adjust withholding: you got married and want to claim married status; you had a baby and want to claim a dependent; you took a second job and need more withheld to cover the extra income; you expect to owe taxes and want to increase withholding; or you got a large refund last year and want to decrease withholding to take home more pay now.
The IRS provides a withholding calculator on its website (irs.gov) to help you figure out whether your current withholding is correct. You enter your income, filing status, and other details, and it tells you whether you should adjust your W-4.
Common Deduction Mistakes and How to Spot Them
The most common mistake is claiming too many allowances on your W-4, which results in too little withholding and a tax bill in April. The opposite — claiming zero allowances — results in a large refund, which means you gave the government an interest-free loan all year. Neither is wrong, but one leaves you short of cash and the other leaves you waiting for money that was yours.
Another mistake is not updating your W-4 after a major life change. If you get married but do not update your form, you may be withheld as single, which is usually too much. If you have a child but do not claim the dependent, you will owe money at tax time instead of getting a refund.
If you work two jobs, each employer withholds based on the assumption that job is your only income. The combined withholding may not be enough. You can fix this by increasing withholding at one job or submitting a new W-4 at the second job that accounts for the first job's income.
Frequently Asked Questions
Why is my federal withholding different from my coworker's if we earn the same amount?
Because your W-4 forms are different. You may have claimed different numbers of allowances, dependents, or credits. You may have different filing statuses (single vs. married). Your coworker may have other income or a spouse who works. The IRS tables produce different withholding amounts based on these factors, even if gross pay is identical.
Can I claim zero allowances to get a bigger refund?
Yes, but you will have less money in each paycheck. Claiming zero means maximum withholding, which usually results in a refund at tax time. This is a choice, not a requirement. The goal of withholding is to match your actual tax liability, not to maximize or minimize your refund.
What happens if I do not fill out a W-4?
Your employer will withhold as if you claimed zero allowances, which is the highest withholding rate. You must complete a W-4 before your first paycheck. If you do not submit one, your employer cannot legally pay you.
Do I pay Social Security and Medicare tax on bonuses?
Yes. Bonuses are wages, so Social Security (6.2%) and Medicare (1.45%) are withheld from them just like regular pay. Federal income tax is also withheld, though the amount depends on how your employer treats the bonus on your W-4.
If I claim married on my W-4 but file single taxes, what happens?
You will likely have too little withheld during the year and owe money when you file. Your W-4 should match your expected filing status. If you are single but claimed married to reduce withholding, the IRS may assess penalties and interest on the unpaid tax.