Federal income tax, Social Security, and Medicare are the main deductions on most paychecks

Your employer removes money from your paycheck before you see it. The amount depends on what you earn, where you live, and what you told your employer on a form called the W-4. Federal income tax is the largest deduction for most people. Social Security takes 6.2 percent of your wages (up to a yearly cap). Medicare takes 1.45 percent with no cap. Your employer also matches those Social Security and Medicare amounts, but that money does not come from your paycheck — it comes from the employer's own budget.

State and local income taxes may also come out, depending on where you work and live. Some states have no income tax at all. Others take between 1 and 13 percent. A few cities add their own tax on top of the state amount. The total of all deductions can range from roughly 20 to 40 percent of your gross pay, though the exact figure is different for every person.

Key Takeaways

  • Federal income tax, Social Security (6.2 percent), and Medicare (1.45 percent) are withheld from nearly every paycheck in the United States.
  • The amount of federal income tax withheld depends on your W-4 form, which you fill out when you start a job and can change anytime.
  • State and local income taxes vary by location — some states take nothing, while others take up to 13 percent of your wages.
  • Your actual take-home pay is your gross pay minus all federal, state, and local deductions, plus any voluntary deductions like health insurance or retirement contributions.

How federal income tax withholding is calculated

Your employer uses the W-4 form to decide how much federal tax to hold from each paycheck. You fill this out when you start a job. The form asks about your filing status (single, married, head of household), how many jobs you have, and whether you have dependents. Based on your answers, the IRS provides a withholding table that tells your employer how much to take.

The more dependents you claim or the more you say you will owe in taxes, the less your employer withholds. The fewer dependents you claim, the more gets withheld. If you want less withheld (and a bigger paycheck), you can claim more allowances. If you want more withheld (so you get a refund at tax time), you can claim fewer allowances or ask your employer to take an extra amount.

You can change your W-4 anytime — when you get married, have a child, take a second job, or if your withholding is not matching what you actually owe. Many people adjust it in January or after a major life change.

Social Security and Medicare withholding

Social Security takes 6.2 percent of your wages, but only on income up to a certain amount each year. In 2024, that cap is $168,600, meaning once you earn that much, no more Social Security tax comes out for the rest of the year. This is called the Social Security wage base, and it changes yearly.

Medicare takes 1.45 percent of all your wages with no upper limit. If you earn over $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9 percent Medicare tax is withheld on the amount above that threshold. Unlike federal income tax, these amounts do not change based on your W-4 — they are fixed percentages set by law.

Both Social Security and Medicare are FICA taxes (Federal Insurance Contributions Act). Your employer pays an equal amount on your behalf, but you do not see that money. It goes directly to the government to fund these programs.

State and local income tax withholding

Most states with an income tax require your employer to withhold it from your paycheck. The rate varies widely. As of 2024, nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). The remaining states range from about 1 percent to 13 percent.

Some cities also tax wages. New York City, Philadelphia, and Washington, D.C. are examples. If you work in one of these places, your employer withholds city tax on top of state tax. You may also owe local tax where you live, even if you work elsewhere — this depends on your state and city rules.

When you start a job, your employer may ask you to fill out a state withholding form similar to the federal W-4. Some states use the same form; others have their own. If you do not fill one out, your employer usually withholds at a default rate, which is often higher than necessary.

Other deductions that come out of your paycheck

Beyond taxes, your employer may withhold money for benefits and retirement accounts. Health insurance premiums (medical, dental, vision) often come out before taxes are calculated, which lowers your taxable income. A 401(k) or similar retirement plan contribution also comes out pre-tax, meaning it reduces the amount the government taxes you on.

Some deductions come out after taxes are calculated. These include life insurance, flexible spending accounts (FSA) for medical or dependent care, and garnishments (court-ordered payments to creditors or for child support). Charitable donations and union dues may also be withheld if you authorize them.

Your pay stub shows every deduction. The gross pay is what you earned before anything came out. The net pay (or take-home pay) is what you actually receive after all deductions. If the numbers do not match what you expect, your pay stub will show each line item so you can track where the money went.

Why your withholding might not match what you owe at tax time

Withholding is an estimate. Your employer calculates it based on the assumption that you will earn the same amount every pay period for the whole year. If your income changes — you get a raise, take unpaid leave, work overtime, or have a second job — the withholding may not be correct.

You might also have income your employer does not know about: freelance work, investment income, rental income, or a spouse's income if you are married. These can change what you actually owe. If too much was withheld, you get a refund. If too little was withheld, you owe money when you file your tax return.

Changing your W-4 mid-year can help. If you realize you will earn much more than expected, you can claim fewer allowances to have more withheld. If you will earn less, you can claim more allowances to have less withheld. The goal is to get as close as possible to zero when you file, though many people intentionally over-withhold to force themselves to save.

How to read your pay stub and understand your deductions

Your pay stub lists gross pay at the top, then each deduction line by line, and finally net pay at the bottom. Federal withholding, Social Security, and Medicare are always listed separately. State and local taxes appear if you owe them. Voluntary deductions like 401(k) contributions and health insurance appear next, usually marked as pre-tax or post-tax.

Year-to-date (YTD) columns show totals for the year so far. This is useful for tracking whether you have hit the Social Security wage base cap or whether your withholding seems on track. If you notice an error — a deduction that should not be there, or a missing deduction — contact your payroll department right away.

Comparing your pay stub to your previous one can show whether your withholding changed. If you recently updated your W-4, you should see a difference in the next paycheck. If nothing changed and you expected it to, follow up with payroll to make sure the form was processed.

Frequently Asked Questions

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

No. Federal income tax, Social Security, and Medicare are required by law. You cannot opt out. You can adjust how much federal income tax is withheld by changing your W-4, but you cannot eliminate it entirely unless you genuinely expect to owe zero tax for the year (which is rare and requires IRS approval).

Why is my paycheck smaller after I got a raise?

A raise pushes you into a higher tax bracket, so more federal income tax is withheld. Your take-home pay still goes up, but not by the full amount of the raise. If the jump seems too large, you may have also crossed a threshold for the additional Medicare tax (0.9 percent on income over $200,000 for single filers).

What happens if my employer withholds the wrong amount?

If too much is withheld, you get a refund when you file your tax return. If too little is withheld, you owe money. You can adjust your W-4 anytime to correct the problem for future paychecks. If the error is large, contact your payroll department to make sure your W-4 was entered correctly.

Do I have to pay Social Security and Medicare taxes if I am self-employed?

Yes, but differently. Self-employed people pay both the employee and employer portions (15.3 percent total instead of 7.65 percent). This is called self-employment tax. You pay it when you file your tax return, not through paycheck withholding, though you can make quarterly estimated tax payments to avoid a large bill at the end of the year.

Why does my state withholding seem too high?

If you did not fill out a state withholding form when you started your job, your employer may be using a default rate, which is often conservative. Fill out the correct form for your state to adjust it. You can also claim a refund of overpaid state tax when you file your state return.