The money removed from your paycheck before you see it

Your employer removes money from your paycheck for federal income tax, Social Security tax, and Medicare tax. The amount depends on what you earn, how many dependents you claim, and your state. Most people also see state income tax taken out, though some states have none. Your employer is required by law to withhold these amounts and send them to the government on your behalf.

The withholding is not a penalty or a loan — it is a prepayment toward the taxes you will owe at the end of the year. If too much is withheld, you get a refund. If too little is withheld, you owe money when you file your tax return.

Key Takeaways

  • Federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%) are removed from every paycheck for most workers.
  • The amount of federal income tax withheld depends on the W-4 form you filled out when you started your job, which asks about dependents and other income.
  • Most states also withhold state income tax, but nine states have no state income tax at all.
  • Your employer sends the withheld money to the government, and any overpayment is returned to you as a refund when you file your tax return.

Federal income tax withholding and your W-4

Federal income tax is calculated using the W-4 form you complete when you are hired. This form tells your employer how much to withhold from each paycheck. The W-4 asks for your name, address, filing status (single, married, head of household), number of dependents, and whether you have other jobs or income.

The more dependents you claim on your W-4, the less federal tax is withheld. The fewer dependents you claim, the more is withheld. If you claim zero dependents, your employer withholds the maximum amount. If you claim the actual number of dependents you support, the withholding is lower.

You can change your W-4 at any time during the year by submitting a new form to your payroll department. Many people update their W-4 after a major life change — marriage, divorce, birth of a child, or taking a second job — to adjust their withholding.

Social Security and Medicare taxes

These two taxes are separate from federal income tax and are withheld at a fixed rate. Social Security tax is 6.2% of your gross pay, up to a yearly earnings cap (the cap changes each year). Medicare tax is 1.45% of your gross pay with no earnings cap. Together, these are often called FICA taxes.

Unlike federal income tax, the Social Security and Medicare rates do not change based on your W-4 or dependents. They are the same for every worker. Your employer also pays an equal amount (6.2% for Social Security, 1.45% for Medicare) on your behalf, though you do not see this on your paycheck.

If you earn over a certain amount in a year, an additional Medicare tax of 0.9% is withheld. This extra tax applies to high earners and is separate from the standard 1.45% Medicare tax.

State income tax withholding

Most states withhold state income tax from your paycheck, but the rate and rules vary widely. Some states have a flat tax rate (the same percentage for all workers), while others use a graduated system (higher earners pay a higher percentage). Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — have no state income tax at all.

If you work in a state with state income tax, you usually fill out a state W-4 form (sometimes called a state withholding certificate) when you are hired. This form works similarly to the federal W-4 and lets you adjust how much state tax is withheld. Some states allow you to claim dependents; others do not.

If you work in one state but live in another, the rules depend on where you work. You typically pay income tax to the state where you earn the money, though some states have reciprocal agreements that change this rule.

Local taxes and other deductions

Some cities and counties also withhold local income tax or wage tax. This is common in places like New York City, Philadelphia, and Columbus, Ohio. The rate is usually small — often less than 2% — but it appears as a separate line on your pay stub.

Your paycheck may also show deductions that are not taxes: health insurance premiums, retirement plan contributions (like a 401(k)), flexible spending account contributions, and union dues. These are voluntary deductions you agreed to when you enrolled in the plan. They reduce your take-home pay but are not taxes owed to the government.

Reading your pay stub to see what was withheld

Your pay stub (or earnings statement) shows every deduction taken from your paycheck. It lists gross pay (your total earnings before any deductions), then itemizes federal income tax, Social Security tax, Medicare tax, state income tax, local tax (if applicable), and any voluntary deductions.

The pay stub also shows year-to-date totals, which tell you how much has been withheld so far in the calendar year. This information is useful when you file your tax return, because you will need to know your total federal income tax withheld for the year.

If you notice an error on your pay stub — such as incorrect withholding or a deduction you did not authorize — contact your payroll department immediately. Errors can usually be corrected on the next paycheck.

Why withholding amounts change

Your withholding can change for several reasons. If you get a raise, your federal income tax withholding may increase because you are earning more. If you change your W-4 (for example, after having a child), your withholding will adjust on the next paycheck. If you work multiple jobs, you may need to adjust your W-4 on one or both jobs to avoid under-withholding.

Seasonal workers and people with variable income often see their withholding change throughout the year as their earnings fluctuate. If you know your income will be lower in some months, you can adjust your W-4 to reduce withholding during those periods.

Frequently Asked Questions

Why do I get a tax refund if taxes are already taken out of my paycheck?

Your employer estimates how much tax you owe based on your W-4, but the estimate is often too high. When you file your tax return, the government calculates your actual tax liability. If more was withheld than you owe, you receive the difference as a refund. If less was withheld, you owe the difference.

Can I stop taxes from being taken out of my paycheck?

No. Federal income tax, Social Security tax, and Medicare tax are required by law for most workers. You cannot opt out. You can adjust your W-4 to change how much federal income tax is withheld, but you cannot eliminate it entirely. Self-employed people pay these taxes differently but still owe them.

What if I claim too many dependents on my W-4?

If you claim more dependents than you actually support, too little tax will be withheld from your paycheck. When you file your tax return, you will owe the difference plus potential penalties and interest. It is better to claim the number of dependents you actually have or claim fewer to avoid owing money at tax time.

Do I pay Social Security and Medicare tax on all my income?

Social Security tax has an earnings cap — once you earn above a certain amount in a year, no more Social Security tax is withheld. Medicare tax has no cap and is withheld on all earnings. High earners also pay an additional 0.9% Medicare tax on income above a threshold amount.

How do I know if the right amount is being withheld?

Use the IRS withholding calculator on irs.gov to estimate whether your withholding is correct. If you expect a large refund or owe a large amount at tax time, your withholding is probably off. You can submit a new W-4 to your employer to adjust it.