What gets deducted and why

Payroll tax deductions come out of your gross pay — the amount your employer pays you before any taxes or other withholdings. The main deductions are federal income tax, Social Security tax (6.2% of your wages), and Medicare tax (1.45% of your wages). Your employer also withholds these amounts and sends them to the IRS on your behalf. Some states and cities add their own income tax deductions on top.

The amount withheld depends on three things: your pay frequency, how much you earn, and the W-4 form you filled out when you started your job. The W-4 tells your employer how many allowances to claim, which directly changes how much federal tax comes out. If you claim more allowances, less tax is withheld. If you claim fewer, more is withheld.

Social Security and Medicare taxes are straightforward — they are a fixed percentage of every paycheck, with no variation based on your W-4. But federal income tax varies based on your W-4 entries and your pay frequency. Your employer uses IRS tax tables to calculate the exact amount.

Key Takeaways

  • Federal income tax withholding is calculated using your W-4 form, pay frequency, and gross pay, then looked up in IRS tax tables your employer uses.
  • Social Security tax is always 6.2% of your gross pay, and Medicare tax is always 1.45%, with no variation based on your W-4.
  • Your W-4 allowances directly control federal withholding — more allowances mean less tax taken out, fewer allowances mean more.
  • Some states and cities add their own income tax deductions, which are calculated separately using state or local tax tables.
  • You can change your W-4 at any time during the year if you want to adjust how much is withheld from future paychecks.

How the W-4 controls federal income tax withholding

When you start a job, you complete a Form W-4 (Employee's Withholding Certificate). This form asks for your filing status, number of dependents, and whether you have other income or jobs. Your answers determine your "withholding allowances" — a number that tells your employer how much federal tax to take out.

Each allowance reduces the amount of federal tax withheld. If you claim zero allowances, the maximum amount is withheld. If you claim one allowance per dependent, less is withheld. The IRS publishes tax tables every year that show, for each pay frequency and allowance count, exactly how much federal tax should come out of a given paycheck.

For example, if you are paid weekly, earn $800 gross, and claim two allowances, your employer looks up that combination in the weekly tax table and finds the federal withholding amount — say $65. That $65 comes out of your $800 paycheck. If you had claimed zero allowances instead, the table might show $95 should be withheld from the same $800 paycheck.

You can update your W-4 whenever your situation changes — if you get married, have a child, take a second job, or want to adjust your withholding. The change takes effect on the next paycheck after your employer processes the new form.

Social Security and Medicare tax calculation

These two taxes are calculated the same way every time: as a fixed percentage of your gross pay. Social Security tax is 6.2% and Medicare tax is 1.45%. Your employer withholds both and sends them to the IRS along with matching amounts the employer pays separately.

If your gross pay is $1,000, Social Security withholding is $62 and Medicare withholding is $14.50. This happens on every paycheck, regardless of your W-4 or filing status. The only exception is the Social Security wage base limit — in 2024, you stop paying Social Security tax once your year-to-date earnings reach a certain threshold (the threshold changes each year). Medicare tax has no wage base limit, so it continues on all earnings.

Self-employed people calculate these the same way but pay both the employee and employer portions themselves, which is why self-employment tax is roughly double. Employees only see the employee portion on their paychecks.

State and local income tax deductions

If you live or work in a state with income tax, your employer withholds state tax as well. The calculation works similarly to federal tax — your employer uses state tax tables and information from your state W-4 form (or equivalent). Some states use a simpler flat percentage; others use brackets like the federal system.

A handful of cities, including New York City and Washington, D.C., also impose local income tax. Local tax is calculated the same way and withheld separately. You may need to fill out a local tax form when you start a job in one of these cities.

State and local tax rates and thresholds vary widely. Some states have no income tax at all. If you move to a different state or city during the year, you may need to update your withholding forms to reflect the new location.

Reading your pay stub to verify the math

Your pay stub shows every deduction taken from your paycheck. The stub lists gross pay at the top, then itemizes each deduction: federal income tax, Social Security, Medicare, state tax (if applicable), and local tax (if applicable). It also shows year-to-date totals for each.

To verify the calculation is correct, start with your gross pay and check that Social Security is 6.2% and Medicare is 1.45%. These should be exact unless you are near the Social Security wage base limit. Federal tax is harder to verify by hand because it depends on the tax table, but you can cross-check it against the IRS tax tables for your pay frequency and allowance count.

If a deduction looks wrong — for example, if federal tax suddenly jumps without a W-4 change, or if Social Security is more than 6.2% — contact your payroll department. Common mistakes include an incorrect allowance number entered into the system or a failure to update withholding after a W-4 change.

What happens if too much or too little is withheld

If your employer withholds too much federal tax throughout the year, you will receive a refund when you file your tax return. If too little is withheld, you will owe money when you file. Neither outcome is a penalty — it is straightforward a reconciliation of what you owe versus what was already paid.

To avoid a large refund or bill at tax time, you can adjust your W-4 during the year. The IRS provides a W-4 calculator on its website that estimates how many allowances you should claim based on your income, filing status, and other factors. If the calculator suggests a different number than what you currently claimed, you can submit a new W-4 to your employer.

Some people intentionally claim fewer allowances to have more withheld, treating it as forced savings. Others claim more allowances to take home more pay each month. The right choice depends on your situation and whether you prefer a refund or a smaller tax bill.

Frequently Asked Questions

Why does my federal tax withholding change if my W-4 doesn't?

Federal tax withholding can change if your gross pay changes significantly — for example, if you get a raise or start working overtime. The tax tables calculate withholding based on your pay amount, so higher pay means higher withholding even with the same allowances. It can also change if you cross the Social Security wage base limit, though that affects only Social Security, not federal income tax.

Can I claim zero allowances to get a bigger refund?

Yes, you can claim zero allowances, which maximizes federal withholding. However, this means less money in your paycheck each week. It is not a way to earn extra money — it is straightforward withholding more now and receiving it back as a refund later. The total tax you owe does not change; only the timing of when you pay it.

What if I have two jobs — do I fill out a W-4 for each?

Yes, you fill out a W-4 for each employer. However, the withholding from both jobs combined may not be correct because each employer calculates independently. The IRS W-4 form includes a line for reporting other jobs so you can adjust your allowances to account for total household income. Using the IRS W-4 calculator is the best way to get the right number.

Do I pay Social Security and Medicare tax on bonuses?

Yes. Social Security (6.2%) and Medicare (1.45%) are withheld from bonuses the same way they are from regular pay. Federal income tax is also withheld from bonuses, though the amount depends on how your employer processes the bonus — some use the same W-4 allowances, others use a flat percentage.

Why is my Medicare withholding higher than 1.45%?

If you earn over a certain threshold (which varies by filing status and year), you pay an additional 0.9% Medicare tax on the excess. This additional tax is withheld by your employer and is separate from the standard 1.45%. For 2024, the threshold is $200,000 for single filers and $250,000 for married filing jointly, but these thresholds do not change year to year.