What Gets Subtracted From Your Paycheck

Your employer calculates payroll taxes by taking your gross pay — the total amount you earned before any deductions — and subtracting federal income tax, Social Security tax, Medicare tax, and any state or local income taxes that explore where you work or live. The math happens the same way every pay period: your employer uses your W-4 form, your state's tax tables, and the current year's tax rates to figure out how much to withhold.

The three main federal taxes are Social Security (6.2% of your gross pay, up to a yearly earnings cap), Medicare (1.45% of your gross pay with no cap), and federal income tax (the amount varies based on your W-4 answers and the IRS tax brackets for the current year). State and local income taxes vary by location — some states have no income tax at all, while others subtract a percentage similar to federal tax.

Your employer does not choose these amounts. They follow IRS rules and your state's tax code. The only part you control is your W-4 form, which tells your employer how much federal income tax to withhold.

Key Takeaways

  • Social Security and Medicare are fixed percentages (6.2% and 1.45%) that your employer subtracts from every paycheck, with Social Security having a yearly earnings cap.
  • Federal income tax withholding depends on your W-4 answers, your pay frequency, and the IRS tax tables for the current year.
  • State and local income taxes vary by where you live and work, and some states do not have income tax at all.
  • Your employer calculates taxes the same way each pay period using the same W-4 and tax tables, so your take-home pay stays roughly the same unless your W-4 changes.
  • You can adjust how much federal income tax is withheld by filing a new W-4 with your employer.

How Federal Income Tax Withholding Works

Federal income tax withholding is the most variable part of your paycheck calculation. Your employer uses your W-4 form to determine how much to withhold. The W-4 asks you to estimate your total income for the year, account for dependents, and note any other jobs or income sources. Based on your answers, you tell your employer whether to withhold a standard amount, more, or less.

Your employer then looks up the withholding amount in IRS Publication 15-T, which contains tax tables for each pay frequency (weekly, biweekly, semimonthly, monthly). The table shows how much to withhold based on your gross pay and your W-4 entries. This is a mechanical process — your employer plugs in the numbers and the table gives the answer.

The withholding amount is not the same as your actual tax bill. It is an estimate meant to get you close to what you will owe when you file your tax return in April. If too much is withheld, you get a refund. If too little is withheld, you owe money.

Social Security and Medicare Tax Calculation

Social Security and Medicare taxes are straightforward because they are flat percentages with no guesswork. Your employer multiplies your gross pay by 6.2% for Social Security and 1.45% for Medicare, then subtracts both amounts from your paycheck.

Social Security tax has a yearly earnings cap. In 2024, you stop paying Social Security tax once you earn $168,600 in a calendar year. Medicare tax has no cap — you pay 1.45% on every dollar you earn, no matter how much. If you earn over $200,000 as a single filer (or $250,000 married filing jointly), you also pay an additional 0.9% Medicare tax on the income above that threshold.

Your employer also pays an equal amount of Social Security and Medicare tax on your behalf — 6.2% and 1.45% respectively. This employer portion does not come out of your paycheck, but it is part of your total employment cost to the company.

State and Local Income Tax Withholding

State income tax withholding varies widely depending on where you live and work. Some states — including Texas, Florida, Nevada, South Dakota, Tennessee, Washington, and Wyoming — have no state income tax at all. Other states withhold a percentage similar to federal tax, using their own W-4 forms or tax tables.

A few states and cities also have local income taxes on top of state tax. New York City, for example, has a city income tax in addition to New York State income tax. Your employer withholds both if you work in a location with local tax.

If you work in one state but live in another, the rules depend on your state's reciprocal agreements. Some states have agreements that let you pay tax only to your home state. Others require you to pay tax to the state where you work. Your employer should know which rule applies based on your address and work location.

What Happens if Your Circumstances Change

If your life changes — you get married, have a child, take a second job, or expect a big change in income — your withholding may no longer be accurate. You can file a new W-4 with your employer to adjust how much federal income tax is withheld going forward.

You do not need to wait until the end of the year. You can submit a new W-4 whenever you want, and the change takes effect on your next paycheck. If you withheld too much in previous paychecks, you will get the extra money back when you file your tax return. If you did not withhold enough, you can adjust your W-4 now to avoid owing a large amount in April.

Some states also let you adjust state withholding by filing a new state W-4. Check your state's tax agency website to see if this option is available where you live.

The Order of Deductions on Your Paycheck

Your paycheck stub shows deductions in a standard order. Gross pay comes first. Then come pre-tax deductions like health insurance premiums and retirement contributions (401(k), 403(b), or similar plans), which lower your taxable income. Next come the taxes: federal income tax, Social Security, Medicare, and state or local income tax. Finally come post-tax deductions like life insurance or wage garnishments, which come out after taxes are calculated.

This order matters because pre-tax deductions reduce the amount of income that Social Security and Medicare taxes are calculated on. If you contribute $200 per paycheck to your 401(k), your Social Security and Medicare taxes are calculated on your gross pay minus $200, not on your full gross pay. Federal income tax withholding also uses this reduced amount as the starting point.

Your paycheck stub should itemize each deduction so you can see exactly what was subtracted and why. If a deduction looks wrong, ask your payroll department to explain it.

How to Verify Your Payroll Tax Calculation

You can check whether your employer calculated your taxes correctly by reviewing your paycheck stub and doing the math yourself. Start with your gross pay. Subtract any pre-tax deductions (health insurance, retirement contributions). Multiply the result by 6.2% for Social Security and 1.45% for Medicare. Look up the federal income tax withholding in IRS Publication 15-T using your W-4 information and pay frequency. Add your state and local taxes if applicable.

The total should match what appears on your paycheck stub. Small differences of a dollar or two can happen due to rounding, but the amounts should be very close. If the numbers are significantly off, contact your payroll department and ask them to review your W-4 and tax setup.

You can also use the IRS Withholding Calculator on the IRS website to estimate whether your current withholding is on track. This tool asks about your income, filing status, and dependents, then tells you whether you are likely to owe money or get a refund when you file your tax return.

Frequently Asked Questions

Why is my take-home pay different every week even though I work the same hours?

If you are paid biweekly or monthly, some months have more pay periods than others, which changes your gross pay and therefore your taxes. Overtime, bonuses, or unpaid time off also change your gross pay from one period to the next. Pre-tax deductions like health insurance may also vary if you have a flexible spending account that resets monthly.

Can I claim zero dependents on my W-4 to get a bigger refund?

Yes, claiming zero dependents when you have dependents will cause more federal income tax to be withheld, which usually results in a larger refund. However, this means less money in your paycheck each week. It is a way to force yourself to save, but it is not required and you will owe the same total tax either way.

What is the difference between gross pay and taxable income?

Gross pay is your total earnings before any deductions. Taxable income is gross pay minus pre-tax deductions like retirement contributions and health insurance premiums. Social Security and Medicare taxes are calculated on taxable income, not gross pay. Federal income tax withholding is also based on taxable income.

Do I pay Social Security tax on money I contribute to my 401(k)?

No. Money you contribute to a traditional 401(k) is deducted before Social Security and Medicare taxes are calculated. This is one of the main benefits of contributing to a 401(k) — you reduce the income subject to these taxes.

Why does my paycheck stub show my employer paid taxes too?

Your employer pays an equal amount of Social Security and Medicare tax on your behalf — 6.2% and 1.45% respectively. This is a cost to the employer, not to you, and does not come out of your paycheck. It is shown on your stub for informational purposes so you can see your total employment cost.