What Gets Deducted From Your Paycheck

Your employer deducts payroll taxes from each paycheck in two main categories: Social Security and Medicare (called FICA taxes), and federal income tax withholding. The amount depends on your gross pay, your filing status, and the W-4 form you filled out when you were hired. Your state may also withhold income tax, and some cities do as well.

The calculation happens in a specific order. First, your employer subtracts pre-tax deductions like health insurance premiums or 401(k) contributions from your gross pay to get your taxable wages. Then they calculate FICA taxes on that reduced amount. Then they calculate federal income tax withholding using IRS tables that match your W-4 answers. Finally, they subtract any post-tax deductions like union dues or garnishments.

You can see this breakdown on your pay stub under labels like "Federal Tax", "Social Security", "Medicare", and sometimes "State Tax" or "Local Tax". If the numbers look wrong, the problem is usually either an incorrect W-4 or a data entry error by payroll.

Key Takeaways

  • Social Security tax is 6.2% of your wages up to a yearly cap (the cap changes each year), and Medicare tax is 1.45% with no cap.
  • Federal income tax withholding is calculated using IRS tables that depend on your W-4 answers, pay frequency, and gross pay.
  • Pre-tax deductions like 401(k) contributions and health insurance reduce the amount that gets taxed, while post-tax deductions do not.
  • Your pay stub shows the exact calculation for each paycheck, and you can compare it to the IRS withholding calculator if you think it is wrong.
  • If you owe money at tax time or get a large refund every year, you can adjust your W-4 to change how much is withheld going forward.

Social Security and Medicare Tax (FICA)

FICA taxes are the easiest to calculate because the rates are fixed by law. Social Security tax is 6.2% of your wages, but only up to a maximum amount per year — this cap changes annually and is set by the Social Security Administration. Medicare tax is 1.45% of all your wages with no upper limit. If you earn over a certain threshold (the amount depends on your filing status), you also pay an additional 0.9% Medicare tax on the excess.

Your employer calculates FICA on your taxable wages after pre-tax deductions are subtracted. So if you contribute $200 per paycheck to your 401(k), that $200 comes out before FICA is calculated. The math looks like this: (Gross Pay − Pre-tax Deductions) × FICA Rate = FICA Tax.

You can find your year-to-date FICA taxes on your pay stub. Social Security will stop being deducted once you hit the yearly wage cap, but Medicare continues all year. If you work for multiple employers in the same year, you might pay Social Security tax on more than the cap across all jobs — you can claim the overpayment as a credit on your tax return.

Federal Income Tax Withholding

Federal income tax withholding is more complex because it depends on your personal situation, not just a fixed percentage. Your employer uses the W-4 form you completed to determine how much to withhold. The W-4 asks for your filing status (single, married, head of household), the number of dependents you claim, and any other income or deductions you expect.

The IRS publishes withholding tables for each pay frequency (weekly, biweekly, monthly, and so on). Your employer looks up your gross pay and filing status in the correct table, then applies any adjustments based on your W-4 answers. The result is the federal income tax amount deducted from that paycheck. This is why two people earning the same gross pay can have different federal tax withholding — their W-4 answers are different.

If you change jobs, get married, have a child, or your tax situation changes significantly, you should fill out a new W-4. You can also adjust your W-4 mid-year if you realize you are withholding too much or too little. The IRS has a withholding calculator on its website (irs.gov) that walks you through the questions and tells you what to enter on your W-4.

Pre-Tax Versus Post-Tax Deductions

Understanding the difference between pre-tax and post-tax deductions changes how much you actually owe in taxes. Pre-tax deductions reduce your taxable wages before any taxes are calculated. Common examples are 401(k) contributions, traditional IRA contributions (if your employer offers payroll deduction), health insurance premiums, dental and vision insurance, and flexible spending account (FSA) contributions. When you deduct $100 pre-tax, you pay less Social Security, Medicare, and federal income tax on that $100.

Post-tax deductions come out after taxes are calculated, so they do not reduce your tax burden. Examples include Roth 401(k) contributions, union dues, wage garnishments, and some employer stock purchase plans. The order on your pay stub matters: pre-tax deductions come out first, then FICA and federal income tax are calculated, then post-tax deductions come out.

If your employer offers a health savings account (HSA), contributions are pre-tax, which means you save on both income tax and FICA. This is one of the biggest tax advantages available to employees, which is why HSAs are valuable even if you do not use them for medical expenses in the current year.

Reading Your Pay Stub

Your pay stub is the document that shows exactly how your paycheck was calculated. It lists your gross pay at the top, then shows each deduction line by line, and ends with your net pay (the amount you actually receive). The deductions section usually shows pre-tax items first, then taxes, then post-tax items.

Look for these labels: "Gross Pay" or "Gross Earnings" (your total pay before deductions), "Federal Tax" or "FIT" (federal income tax withholding), "Social Security" or "OASDI" (the 6.2% tax), "Medicare" (the 1.45% tax), and "State Tax" if your state has income tax. Many pay stubs also show year-to-date totals for each category, which helps you track whether withholding is on track.

If a deduction looks wrong, check it against your W-4 and your benefits elections. Common mistakes include an old W-4 still on file, a data entry error when you enrolled in benefits, or a change in pay frequency that was not reflected in the withholding calculation. Contact your payroll department with your pay stub in hand — they can usually spot the error and fix it within one or two pay periods.

Adjusting Your Withholding

If you owe a large amount at tax time or receive a big refund every year, your withholding is not matching your actual tax liability. You can fix this by submitting a new W-4 to your employer. The form has a section for "other income" (like self-employment income or investment income) and a section for "deductions" (if you itemize instead of taking the standard deduction). Filling these out accurately helps your employer withhold the right amount.

You can also claim dependents on your W-4 if you have children or other may have access to relatives. Each dependent reduces your withholding, so claiming more dependents means less tax comes out of each paycheck. However, if you claim too many, you might owe money when you file your return.

The IRS withholding calculator (available at irs.gov under "Tools") asks you questions about your income, filing status, dependents, and deductions, then tells you exactly what to enter on your W-4. This is the most accurate way to adjust your withholding. You can run the calculator once a year or whenever your situation changes.

State and Local Income Tax

Most states have an income tax, and some cities do as well. Your employer withholds state and local tax using forms similar to the federal W-4 — often called a state W-4 or a local tax form. The calculation method varies by state: some use a percentage of gross pay, some use tables like the federal system, and some use a combination.

If you work in one state but live in another, you typically pay tax to the state where you work, though some states have reciprocal agreements that change this. If you work for multiple employers in different states, each one withholds based on its own state rules. You can claim overpayment of state tax as a credit on your state return.

State and local tax withholding is separate from federal withholding, so adjusting your federal W-4 does not change your state or local withholding. If you need to adjust state tax, you will need to fill out your state's withholding form and submit it to your employer.

Frequently Asked Questions

Why is my federal tax withholding different from my coworker's if we earn the same pay?

Your W-4 answers are different. Federal withholding depends on your filing status, number of dependents, and other income — not just your gross pay. Two people earning $50,000 per year might have very different withholding if one is married with three children and the other is single with no dependents.

Can I stop paying Social Security tax if I reach the yearly cap?

Yes. Once your year-to-date Social Security wages hit the annual cap (set by the Social Security Administration and different each year), your employer stops deducting the 6.2% Social Security tax for the rest of that year. Medicare tax continues all year with no cap. If you work for multiple employers, you might pay over the cap — you can claim the excess as a credit on your tax return.

What happens if I claim zero dependents on my W-4?

Claiming zero dependents tells your employer to withhold the maximum federal income tax from each paycheck. This usually results in a large refund at tax time, but it also means less money in your paycheck throughout the year. Claiming the actual number of dependents you have usually results in withholding that is closer to what you actually owe.

Do I have to fill out a new W-4 every year?

No. Your W-4 stays in effect until you change it or your employer asks you to update it. However, if your life changes — you get married, have a child, or your income changes significantly — you should fill out a new W-4 so your withholding stays accurate.

Can I reduce my federal tax withholding by increasing my 401(k) contribution?

Yes, but only indirectly. Increasing your 401(k) contribution reduces your taxable wages, which lowers both your FICA taxes and your federal income tax withholding. However, the reduction in federal tax withholding is usually smaller than the reduction in FICA because federal withholding is based on your W-4, not a fixed percentage.