How much tax comes out depends on what you earn, where you live, and what you claim on your W-4
Your employer withholds federal income tax, Social Security tax, and Medicare tax from every paycheck. The federal amount changes based on your annual salary, your filing status, and the number of dependents you claim on your W-4 form. State and local income taxes (if your state or city has them) come out on top of that. Most people see 10 to 22 percent of their gross pay disappear before they see it, though the exact number varies widely.
The withholding is not a penalty—it is a prepayment toward your annual tax bill. If your employer withholds too much, you get a refund when you file taxes. If too little comes out, you owe money. The goal is to land close to zero, so you are not lending the government money interest-free all year.
Key Takeaways
- Federal income tax withholding is calculated using your W-4 form, which asks for your filing status, number of dependents, and other income sources.
- Social Security tax (6.2 percent) and Medicare tax (1.45 percent) are fixed percentages that come out of every paycheck up to an annual earnings cap for Social Security.
- State and local income taxes vary by location—some states have no income tax, while others take 3 to 13 percent of your pay.
- You can adjust your withholding by submitting a new W-4 to your employer if you expect a large refund or owe money at tax time.
- Your pay stub shows exactly what was withheld and why, broken down by tax type.
Federal income tax withholding and your W-4
When you start a job, you fill out a W-4 form (officially "Employee's Withholding Certificate"). This form tells your employer how much federal income tax to take out of each paycheck. The IRS provides a worksheet on the form itself to help you calculate the right amount, though many people estimate or use the IRS withholding calculator at irs.gov.
The W-4 asks four main things: your filing status (single, married, head of household), the number of dependents you claim, whether you have a second job or a spouse who works, and whether you have other income like investments or side work. Each answer shifts the withholding amount. A married person with three children will have less withheld than a single person earning the same salary, because dependents reduce your tax bill.
If you get a large refund every year, you can submit a new W-4 to reduce withholding and take home more pay each month. If you owe money at tax time, you can increase withholding. Your employer must process a new W-4 within three pay periods.
Social Security and Medicare taxes (FICA)
FICA taxes (Federal Insurance Contributions Act) are split into two parts and come out of every paycheck at a fixed rate. Social Security tax is 6.2 percent of your gross pay, up to a wage cap that changes each year. In 2024, the cap is $168,600, meaning once you earn that much in a calendar year, no more Social Security tax comes out. Medicare tax is 1.45 percent of all your earnings with no cap.
These are not optional or adjustable on your W-4—they come out the same way for everyone. Your employer also pays a matching amount (6.2 percent for Social Security, 1.45 percent for Medicare), but that does not appear on your pay stub. If you are self-employed, you pay both the employee and employer portions, which is why self-employment tax is higher.
High earners also pay an additional 0.9 percent Medicare tax on income above $200,000 (single) or $250,000 (married filing jointly). This extra tax started in 2013 and appears as a separate line on your pay stub once you cross the threshold.
State and local income taxes
Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). The remaining 41 states and many cities take a percentage of your pay. State rates range from about 1 percent to 13 percent depending on your income bracket and location.
Your employer withholds state tax based on a state W-4 form (some states call it different names). The process is similar to federal withholding—you claim dependents and filing status, and the state calculates how much to take out. If you work in one state but live in another, you may owe tax to both, though most states have reciprocal agreements to avoid double taxation.
City income taxes exist in a handful of places, most notably New York City, Philadelphia, and Columbus, Ohio. These are usually small (1 to 3 percent) but stack on top of state and federal withholding. Check your pay stub to see if a city tax line appears.
Reading your pay stub
Your pay stub breaks down every deduction in detail. The top section shows your gross pay (what you earned before anything comes out). Below that, you will see lines for federal income tax, Social Security, Medicare, state income tax, and any local taxes. Some pay stubs also show voluntary deductions like health insurance premiums, retirement contributions, or union dues.
Compare the withholding amounts to what you expect. If federal income tax seems very high or very low, your W-4 may need adjustment. If you see a state tax you did not expect, you may have moved or changed jobs and not updated your state W-4. If you do not understand a line, ask your payroll department—they can explain what each deduction is and why it is there.
Keep your pay stubs for the year. When you file taxes, you will receive a W-2 form from your employer showing your total earnings and total withholding. The W-2 numbers should match the sum of all your pay stubs.
Adjusting your withholding during the year
You do not have to wait until next year to change your withholding. If you get married, have a child, take a second job, or expect a major life change, you can submit a new W-4 to your employer at any time. The new withholding takes effect on the next paycheck or within a few pay periods.
Use the IRS withholding calculator (irs.gov/taxes/individuals/tax-withholding-estimator) to see if an adjustment makes sense. The calculator asks about your income, filing status, dependents, and other taxes you pay. It estimates whether you are on track to owe or receive a refund, and suggests a new W-4 entry if needed.
If you are self-employed or have investment income, you may need to make quarterly estimated tax payments instead of relying on withholding. This is separate from paycheck withholding and is due on specific dates throughout the year.
Why you might owe or get a refund
If your withholding is too high, you get a refund when you file your tax return. This happens often to people who claim zero dependents, have a second job, or have income their employer does not know about. A refund means you lent the government money all year with no interest.
If your withholding is too low, you owe money at tax time. This happens to people who underestimate their income, have significant investment gains, or claim too many dependents. You may also owe if you did not have enough withheld from a second job or side income.
The goal is to adjust your W-4 so that your withholding is as close as possible to your actual tax bill. This way, you take home the right amount each month and do not have a large refund or bill in April.
Frequently Asked Questions
Why does my paycheck go down when I get a raise?
A raise moves you into a higher tax bracket, so more federal income tax comes out. However, you still take home more money overall—the tax increase is smaller than the raise itself. Your Social Security and Medicare taxes also increase slightly because they are percentages of your gross pay.
Can I claim zero dependents to get a bigger refund?
Yes, but it means less money in your paycheck each month. Claiming zero withholds the maximum amount and usually results in a refund, but you are essentially giving the government an interest-free loan. It is better to adjust your W-4 so withholding matches your actual tax bill.
What happens if I do not fill out a W-4?
Your employer will withhold taxes as if you are single with no dependents, which is the highest withholding rate. You should fill out a W-4 as soon as possible to avoid overpaying throughout the year.
Do bonuses get taxed differently?
Bonuses are subject to the same federal, state, and FICA taxes as regular pay. Your employer may withhold a flat 22 percent (or 37 percent for bonuses over $1 million), but the actual tax owed depends on your total income for the year. You may owe more or less when you file your return.
Why is my Social Security tax capped but Medicare is not?
Social Security is a benefit program where your retirement payment is based on your earnings history, so there is a maximum benefit amount. Medicare is an insurance program with no earnings limit, so high earners pay tax on all their income. The additional 0.9 percent Medicare tax on high earners was added to help fund the program.