What Gets Deducted and Why

Payroll tax deductions are amounts your employer removes from your gross pay before you receive your paycheck. The main deductions are federal income tax, Social Security tax (6.2% of wages), and Medicare tax (1.45% of wages). Your employer also deducts state income tax in most states, and some cities deduct local income tax. These are not optional — they are required by law, and your employer must send them to the IRS and your state on your behalf.

The amount deducted depends on three things: your gross pay (what you earn before deductions), the tax rates set by federal and state law, and information you provided on your W-4 form when you started the job. The W-4 tells your employer how many withholding allowances to claim, which directly changes how much federal income tax comes out of each paycheck.

Social Security and Medicare taxes are straightforward — they are flat percentages applied to your wages. Federal and state income tax withholding is more complex because it depends on your filing status, number of dependents, and other income you may have.

Key Takeaways

  • Social Security tax is always 6.2% of your gross pay, and Medicare tax is always 1.45%, with no variation based on your personal situation.
  • Federal income tax withholding changes based on your W-4 form, which you can update at any time if your life circumstances change.
  • Your employer calculates what to withhold using IRS Publication 15-T tables, which change each year based on tax law and inflation.
  • State and local income tax rates vary by location and are calculated separately from federal withholding using your state's own tables.
  • You can check whether your withholding is correct by running the IRS Withholding Estimator tool on the IRS website.

How Federal Income Tax Withholding Is Calculated

Your employer uses the W-4 form you completed to determine federal income tax withholding. The form asks for your filing status (single, married, head of household), number of dependents, and whether you have other jobs or income. Each answer changes the calculation.

The actual withholding is done using IRS Publication 15-T, which contains wage bracket tables. Your employer looks up your pay period (weekly, biweekly, monthly), finds your gross pay in the correct bracket, and subtracts the amount shown in the table based on your withholding allowances. The IRS updates these tables each year, usually in January, to account for inflation and tax law changes.

For example, if you are single, paid biweekly, earn $1,200 gross, and claimed one withholding allowance on your W-4, your employer would find the biweekly table for 2024, locate the $1,200 row, and subtract the federal income tax amount listed for one allowance. A different number of allowances produces a different withholding amount from the same gross pay.

Social Security and Medicare Tax Calculation

These two taxes are the simplest to calculate because they are flat percentages with no variation. Social Security tax is 6.2% of your gross pay, up to a wage limit that changes each year. In 2024, the limit is $168,600, meaning once you earn that much in a calendar year, Social Security tax stops being deducted from your remaining paychecks. Your employer is responsible for matching this amount.

Medicare tax is 1.45% of all your gross pay, with no wage limit — it continues no matter how much you earn. If your income exceeds $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare tax is withheld. This additional tax has no employer match.

To calculate these by hand: multiply your gross pay by 0.062 for Social Security, and by 0.0145 for Medicare. Most payroll software does this automatically, but understanding the math helps you spot errors on your pay stub.

State and Local Income Tax Deductions

State income tax withholding works similarly to federal withholding — your employer uses state-provided wage bracket tables and your W-4 information (or a state-specific form) to calculate the amount. However, the rates and brackets vary widely by state. Some states have no income tax at all (Texas, Florida, Wyoming, and others), so no state withholding occurs. Other states have rates ranging from about 1% to over 13%.

A handful of cities also impose local income tax — Philadelphia, Columbus, and Kansas City are common examples. Local tax is calculated the same way as state tax, using local wage tables and your filing information. Your employer must know whether your work location is subject to local tax, because it depends on where you work, not where you live.

If you move to a different state during the year, or if you work in a state different from where you live, your withholding may change. You may need to file a new W-4 or state equivalent to adjust your withholding for the new situation.

What Appears on Your Pay Stub

Your pay stub shows the calculation for each deduction. A typical stub lists gross pay at the top, then shows each deduction separately: federal income tax, Social Security, Medicare, state income tax, and any local tax. Some employers also show the year-to-date total for each deduction, which helps you track how much has been withheld so far.

The pay stub also shows your employer's matching taxes (Social Security and Medicare match), though these do not come out of your paycheck — they are paid by your employer separately to the IRS. These appear on your stub for informational purposes only.

If you notice a deduction on your pay stub that you do not recognize, or if the amounts seem wrong, ask your payroll department to explain it. Common issues include incorrect W-4 information, failure to update your form after a life change, or a calculation error in the payroll software.

Adjusting Your Withholding

If you find that too much or too little tax is being withheld, you can change it by submitting a new W-4 form to your employer. You do not need your employer's permission — you can update your W-4 at any time, and the change takes effect on your next paycheck.

Common reasons to adjust your W-4 include: getting married or divorced, having a child, taking a second job, or expecting a large refund or tax bill at the end of the year. The IRS provides a Withholding Estimator tool on its website (irs.gov) that walks you through your situation and recommends how many allowances to claim.

If you claim too many allowances, you will owe tax when you file your return. If you claim too few, you will receive a refund. Neither is illegal, but most people prefer to break even or receive a small refund rather than owe money in April.

Common Mistakes in Payroll Tax Calculation

One frequent error is failing to update your W-4 after a major life change. If you get married, have children, or take a second job, your withholding may no longer be correct. Many people discover this problem when they file their tax return and owe money they did not expect.

Another mistake is misunderstanding the Social Security wage limit. Once you hit the limit in a calendar year, Social Security tax stops being deducted — but this resets on January 1. If you change jobs and work for two employers in the same year, you could pay Social Security tax to both, resulting in an overpayment that you recover when you file your return.

A third issue is not accounting for other income. If you have a side business, rental income, or investment income, your W-4 withholding from your main job may not cover your total tax liability. The Withholding Estimator tool asks about other income for this reason.

Frequently Asked Questions

Can my employer deduct things other than taxes from my paycheck?

Yes. Employers can deduct health insurance premiums, retirement plan contributions (like a 401(k)), flexible spending account contributions, and court-ordered garnishments. These are separate from payroll taxes. Some are pre-tax (they reduce your taxable income) and some are post-tax (they come out after taxes are calculated).

What if I have two jobs — do I pay Social Security tax twice?

Yes, you pay 6.2% Social Security tax to each employer, up to the annual wage limit per employer. If your combined earnings exceed the limit, you will overpay. You recover the overpayment when you file your tax return by claiming a credit on Form 1040.

How do I know if my withholding is correct?

Use the IRS Withholding Estimator on irs.gov. It asks about your income, filing status, dependents, and other tax situations, then tells you whether your current withholding is likely to result in a refund, a balance due, or break-even. Run it once a year or after a major life change.

Do I have to claim allowances on my W-4, or can I just have a flat amount withheld?

You can do either. The W-4 form lets you claim allowances (which uses the IRS tables) or request a flat additional withholding amount in dollars. Some people use both — they claim allowances based on the tables and request an extra $50 per paycheck for safety.

What happens if my employer withholds the wrong amount?

If the error is your employer's fault (they used the wrong W-4 information or misread the tax tables), ask them to correct it and issue a corrected pay stub. If the error is because you provided wrong information on your W-4, you can file a new W-4 to fix it going forward. Either way, any overpayment or underpayment is settled when you file your tax return.