What gets taken out of your paycheck and why

Your employer withholds money from each paycheck for federal income tax, Social Security, and Medicare. The amount depends on what you told your employer on your W-4 form when you were hired, how much you earn, and your filing status. Most people also have state income tax withheld, and some cities withhold local tax as well.

These deductions are not optional — they are required by law. Your employer sends the money to the IRS and state tax agencies on your behalf throughout the year. At the end of the year, you file a tax return to settle up: if too much was withheld, you get a refund; if too little, you owe the difference.

The amount withheld is an estimate based on the information you provided. It is not the same as what you will actually owe in taxes. That is why some people get refunds and others owe money when they file.

Key Takeaways

  • Federal income tax withholding is based on your W-4 form, which you fill out when hired or can update anytime to change how much is taken out.
  • Social Security and Medicare taxes are withheld at a fixed rate: 6.2% for Social Security and 1.45% for Medicare, with no option to change them.
  • State and local income taxes vary by where you live and work, and some states do not have income tax at all.
  • The total withheld is an estimate; you settle the actual amount owed when you file your tax return each year.
  • If you have multiple jobs, a spouse who works, or significant non-wage income, your withholding may be off and you may need to adjust your W-4.

How federal income tax withholding is calculated

Your employer uses the information from your W-4 form to calculate federal income tax withholding. The W-4 asks for your filing status (single, married, head of household), the number of dependents you claim, and whether you have other income or jobs. Based on your answers, your employer withholds a percentage of each paycheck.

The IRS publishes tax tables and a withholding calculator each year. Your employer plugs your gross pay and W-4 information into those tables to figure out the amount. The more dependents you claim or the more adjustments you make, the less is withheld. The fewer dependents you claim, the more is withheld.

You can change your W-4 anytime — you do not have to wait until the new year. If you got a large refund last year, you might file a new W-4 to have less withheld. If you owed money, you might claim fewer dependents to have more withheld. Your employer will use the new W-4 starting with your next paycheck.

Social Security and Medicare taxes (FICA)

FICA taxes — Federal Insurance Contributions Act — are withheld at a fixed rate and do not change based on your W-4. Social Security tax is 6.2% of your gross pay, up to a wage limit that changes each year. Medicare tax is 1.45% of your gross pay with no limit. Your employer also pays an equal amount on your behalf, but that does not show up on your paycheck.

If you earn over a certain threshold (the amount varies by year and filing status), you also pay an additional 0.9% Medicare tax on the excess. This extra tax is withheld by your employer and appears separately on your pay stub.

Unlike federal income tax, you cannot adjust FICA withholding. The rate is the same for everyone. The only way the amount changes is if your pay changes or if you reach the Social Security wage limit partway through the year (after which Social Security tax stops being withheld for the rest of that year).

State and local income tax withholding

Most states have an income tax, but the rate and rules vary widely. Some states have a flat tax rate; others have brackets like the federal system. A few states — including Texas, Florida, Nevada, South Dakota, Tennessee, Washington, and Wyoming — do not have state income tax at all. If you live in one of those states, nothing is withheld for state tax.

If you work in a state different from where you live, your employer withholds based on the state where you work, not where you live. You may then owe taxes to both states when you file, or one state may give you a credit for taxes paid to the other.

Some cities and counties also withhold local income tax. Ohio, Pennsylvania, and Kentucky have local taxes in certain jurisdictions. Your employer will withhold for your local area if it applies. You can usually find your local tax rate on your city or county government website.

Reading your pay stub to see what was withheld

Your pay stub breaks down every deduction. Look for these line items: Federal Income Tax Withholding (or FIT), Social Security (or OASDI), Medicare, and any state or local tax lines. Each shows the amount withheld from that paycheck.

Your gross pay is the total before any deductions. Your net pay (or take-home) is what remains after all withholding and deductions. The difference between the two is the total amount withheld and any other deductions like health insurance premiums or retirement contributions.

If you notice the federal income tax withholding seems too high or too low, compare it to your last few paychecks. If it is consistent, your W-4 is probably set correctly. If it jumps around, contact your payroll department to make sure they are using the right W-4.

When withholding is too much or too little

If your employer withholds too much federal income tax throughout the year, you will get a refund when you file your tax return. If too little is withheld, you will owe money. Neither is ideal — a refund means you gave the government an interest-free loan, and owing money means you may owe a penalty if you did not pay enough during the year.

Withholding is often off when your situation changes: you get married, have a child, take a second job, or have a spouse who works. It can also be off if you have income from sources other than your job — freelance work, rental property, investments, or a business. The W-4 has a section for other income, but many people skip it.

If you expect a large refund or to owe money, file a new W-4 to adjust your withholding. The IRS withholding calculator at irs.gov can help you figure out what to claim. You can also talk to a tax professional or your payroll department for guidance.

Deductions that are not taxes

Your paycheck may also have deductions that are not taxes: health insurance premiums, dental and vision coverage, retirement contributions (like a 401(k)), flexible spending accounts, life insurance, and union dues. These reduce your take-home pay but are separate from tax withholding.

Some of these deductions are pre-tax, meaning they lower your taxable income and reduce the federal income tax you owe. Others are post-tax, meaning they come out after taxes are calculated. Your payroll department or benefits summary will tell you which is which.

These deductions do not appear on your tax return unless they are related to self-employment or business income. They are between you and your employer.

Frequently Asked Questions

Why is my withholding different from my coworker's if we make the same salary?

Because your W-4 forms are different. Your coworker may have claimed more dependents, have a spouse who works, or have other income. They may also have filed a new W-4 recently. Two people with the same gross pay can have very different withholding amounts.

Can I claim zero dependents to get a bigger refund?

You can, but you should not claim dependents you do not have. The IRS can penalize you for filing a false W-4. If you want more withheld to get a refund, use the "extra withholding" line on the W-4 instead, or claim fewer dependents if your situation has changed.

What happens if I do not fill out a W-4?

Your employer will withhold as if you are single with no dependents, which is usually the highest withholding rate. You should fill out a W-4 as soon as you are hired so your withholding matches your actual situation.

Do I have to pay back the taxes withheld from my paycheck?

No. The taxes withheld are your payment toward your annual tax bill. When you file your return, the IRS credits all the withholding against what you owe. If you withheld more than you owe, you get a refund. If you withheld less, you pay the difference.

Can I stop taxes from being withheld from my paycheck?

No. Federal income tax, Social Security, and Medicare withholding are required by law. You cannot opt out. You can only adjust how much federal income tax is withheld by filing a new W-4.