How to Understand the Paycheck Deductions on Your Check
What Taxes Are Deducted from a Paycheck?
When you receive your paycheck, you might notice that the amount you take home is less than what you earned. That’s because various taxes are deducted from your paycheck before it reaches you. Understanding these paycheck deductions can help you plan your finances better. Let’s break down the most common taxes that are withheld from your paycheck in the United States.
Types of Paycheck Deductions
- Federal Income Tax
The federal income tax is one of the most significant deductions from your paycheck. It goes toward funding various federal programs, including national defense, social security, and healthcare. The amount deducted depends on:
- Your earnings: Higher income generally means a higher tax rate.
- Filing status: Whether you’re filing as single, married, or head of household.
- Allowances and withholdings: This is based on the information you provided on your W-4 form when you started your job. You can adjust this form to increase or decrease how much federal income tax is taken out.
The tax rates vary, but they are progressive, meaning the more you earn, the higher the percentage of tax you pay on your income.
- State Income Tax
In addition to federal income tax, most states also deduct state income tax. Like the federal system, state income taxes help fund state-run programs and services like education, transportation, and law enforcement.
- Not all states require this: Some states—like Texas, Florida, and Nevada—do not impose a state income tax, so residents take home a larger portion of their earnings.
- Varies by state: The rate of state income tax and how it’s applied depends on where you live. Some states have a flat tax rate, while others, like California, have a progressive tax system.
- FICA Taxes (Social Security and Medicare)
The Federal Insurance Contributions Act (FICA) taxes fund Social Security and Medicare. These are crucial safety net programs that support retirees, people with disabilities, and the elderly.
- Social Security tax: As of 2024, employees contribute 6.2% of their wages toward Social Security, up to a wage base limit (the cap for taxable earnings).
- Medicare tax: This is 1.45% of all your earnings, with no wage cap. If you earn more than $200,000 (or $250,000 for married couples filing jointly), you may also pay an additional 0.9% Medicare surtax.
- Local Taxes
Some cities and counties also impose local income taxes, which can vary based on where you live or work. This is less common, but cities may often have local taxes that come out of your paycheck. This is especially true of large cities like Columbus, Cincinnati, New York or Chicago.
- Other Deductions
While not technically a tax, other deductions may also come out of your paycheck, such as:
- 401(k) or other retirement contributions
- Health insurance premiums
- Union dues (if applicable)
- Flexible spending account contributions for healthcare or childcare expenses
These are pre-tax deductions, meaning they reduce your taxable income, which can result in paying less in federal and state taxes.
If you ever feel unsure about the amount deducted from your paycheck, reviewing your W-4 form and consulting with a tax professional can ensure you’re on the right track. We’re here to help.
This information is not intended as legal or tax advice. Cowdery Tax and its representatives does not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.