Tax is calculated on your paycheck in layers. Your employer begins with your gross earnings for the pay period, subtracts pre-tax deductions to arrive at taxable wages, then runs those wages through the federal income tax withholding formulas driven by your Form W-4. On top of that, flat FICA taxes come out for Social Security (6.2% up to the annual wage base) and Medicare (1.45% on everything), followed in most states by state income tax and, in some places, local tax. What’s left after any post-tax deductions is your take-home pay.
Start With Gross Pay, Then Subtract Pre-Tax Deductions
Gross pay is the total you earned during the pay period before anything comes out. Salaried workers get their annual salary divided by the number of pay periods; hourly workers get hours multiplied by rate, plus overtime.
Before federal or state income tax gets calculated, certain deductions come off the top and shrink the income that’s actually taxed:
- Traditional 401(k) contributions are excluded from current taxable wages. You’ll pay tax on that money when you withdraw it in retirement.1Internal Revenue Service. Roth Comparison Chart
- Health insurance premiums paid through an employer-sponsored plan are typically taken pre-tax under a cafeteria plan.
- Health savings account (HSA) and flexible spending account (FSA) contributions also come out pre-tax, and in most cases they reduce your FICA wages too.
What’s left after these deductions is your taxable wages for the period — the number that feeds into the withholding formulas. FICA uses a slightly different starting point because some pre-tax deductions reduce FICA wages and some don’t, but for most employees the gap is small.
Federal Income Tax: How Your W-4 Sets the Amount
Your employer can’t calculate federal income tax without the information on your Form W-4, the Employee’s Withholding Certificate.2Internal Revenue Service. Form W-4, Employee’s Withholding Certificate Three inputs on the form drive the math:
- Filing status. Single, Married Filing Jointly, or Head of Household determines which standard deduction and rate schedule apply. For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Dependent credits. You can claim $2,200 per qualifying child under 17 and $500 per other dependent. These reduce your withholding directly.2Internal Revenue Service. Form W-4, Employee’s Withholding Certificate
- Other adjustments in Step 4. You can report non-job income like dividends or rental income, claim deductions beyond the standard deduction, or request an extra flat-dollar amount of withholding per pay period.
If you never submit a W-4, your employer must withhold as if you’re single with no adjustments, which usually pulls more tax than needed.4Internal Revenue Service. Withholding Compliance Questions and Answers
Your employer takes your gross pay, subtracts pre-tax deductions, then subtracts a prorated share of your standard deduction based on filing status. What remains runs through the federal tax brackets, using the formulas in IRS Publication 15-T.5Internal Revenue Service. Publication 15-T (2026), Federal Income Tax Withholding Methods
2026 Federal Tax Brackets
Federal income tax is progressive. Different slices of your income are taxed at different rates, and you never pay the top rate on every dollar. For 2026, single filers face these brackets:3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on income up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% over $640,600
Married couples filing jointly get wider brackets. Their 10% bracket runs to $24,800, their 12% bracket to $100,800, roughly doubling the single-filer thresholds until the top brackets narrow the gap.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
A Worked Example
Take a single filer earning $70,000 with no pre-tax deductions beyond the standard deduction. Taxable income after the $16,100 standard deduction is $53,900. The first $12,400 is taxed at 10% ($1,240), the next $38,000 at 12% ($4,560), and the remaining $3,500 at 22% ($770). Annual federal income tax comes to roughly $6,570, or about $252 per biweekly paycheck. Your employer runs a version of this calculation every pay period.
Bonuses and Other Supplemental Wages
Bonuses, commissions, and severance are classified as supplemental wages and can be taxed differently. If your employer pays them separately from regular wages, they can apply a flat 22% federal withholding rate instead of running the payment through the bracket system.6Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Supplemental wages above $1 million for the year are withheld at 37%. The flat rate is only a withholding shortcut. Your actual tax on that income is settled when you file your return.
FICA: Social Security and Medicare
Alongside federal income tax, two flat-rate taxes come out of every paycheck under the Federal Insurance Contributions Act. FICA is not affected by your filing status or dependents.
Social Security tax is 6.2% of wages up to the annual wage base.7Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax For 2026, the base is $184,500, so the maximum Social Security tax an employee pays is $11,439.8Social Security Administration. Contribution and Benefit Base Once your year-to-date wages hit the cap, Social Security withholding stops and your remaining paychecks get a small bump. Change employers mid-year and the count restarts at zero, since the new employer doesn’t know what the old one withheld. Any overpayment gets reconciled on your return.
Medicare tax is 1.45% on all wages, with no cap.9Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates High earners face an additional 0.9% Medicare tax on wages above $200,000 for single filers, $250,000 for married filing jointly, or $125,000 for married filing separately.7Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax Your employer starts withholding the extra 0.9% once your wages pass $200,000 for the year, regardless of your filing status. Married-filing-jointly couples reconcile any difference at the $250,000 threshold on their return.
Your employer also pays a matching 6.2% Social Security and 1.45% Medicare tax on your wages, but that match doesn’t come out of your paycheck. The 0.9% Additional Medicare Tax is the employee’s alone; there’s no employer match on it.9Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
State, Local, and State Program Withholdings
State income tax is calculated separately from the federal system, and the rules vary widely. Nine states impose no state income tax on wages. Among those that do, some use a single flat rate applied to every dollar of taxable income and others use progressive brackets with rates and thresholds unlike the federal ones.
Your employer withholds based on where you work. If you live in a different state, some states have reciprocity agreements that let you pay tax only to your home state, but you generally need to file an exemption form with your employer. Otherwise, work-state tax comes out and you reconcile with your home state when you file.
Some cities and counties add their own income or occupational taxes on top. Rates range from fractions of a percent to several percent, and a few jurisdictions charge a flat dollar amount per pay period. Your pay stub should itemize these separately from state withholding.
A growing number of states also require employees to contribute to state disability insurance or paid family and medical leave programs through payroll deductions. These are not income taxes, but they appear on your pay stub as mandatory withholdings. Employee rates across the states that run these programs range from roughly 0.19% to 1.3% of wages, often with a wage cap or weekly maximum. If you see an unfamiliar deduction, check your state’s labor department.
Post-Tax Deductions
After taxes are calculated, a second round of deductions may come out of what’s left. These do not reduce your taxable income; the tax has already been figured on the full amount.
- Roth 401(k) contributions come out with after-tax dollars. You pay tax now and get tax-free withdrawals in retirement.1Internal Revenue Service. Roth Comparison Chart
- Wage garnishments for child support, student loans, or unpaid debts. Federal law caps garnishments for ordinary consumer debts at the lesser of 25% of your disposable earnings or the amount by which those earnings exceed 30 times the federal minimum wage. Child support and tax debts are not subject to those limits.10Office of the Law Revision Counsel. 15 US Code 1673 – Restriction on Garnishment
- Union dues and after-tax insurance premiums, such as supplemental life insurance above employer-provided limits.
If you’re trying to lower your tax bill, the leverage is in pre-tax contributions, not post-tax ones.
Checking Your Withholding
Life changes can throw your withholding out of alignment. The IRS recommends submitting a new W-4 after marriage or divorce, having a child, buying a home, starting a second job, or a significant shift in non-wage income like investment gains.11Internal Revenue Service. Tax Withholding You can update your W-4 whenever your situation changes, and your employer must apply the new instructions by the start of the first payroll period at least 30 days out.
The IRS Tax Withholding Estimator is a free online tool that walks through your income, deductions, and credits and generates a completed W-4 you can hand to your employer.12Internal Revenue Service. Tax Withholding Estimator It’s especially useful after a mid-year job change or when both spouses work, since those situations commonly cause underwithholding.
If your total withholding for the year falls short of what you owe, the IRS charges an underpayment penalty — essentially interest on what should have been paid each quarter.13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty> You avoid the penalty by meeting a safe harbor: withholding at least the lesser of 90% of the current year’s tax or 100% of last year’s tax (110% if last year’s adjusted gross income exceeded $150,000).14Office of the Law Revision Counsel. 26 US Code 6654 – Failure by Individual to Pay Estimated Income Tax There’s also no penalty if the balance due after withholding is under $1,000.
If a paycheck looks off, pull the stub and walk each line. Compare federal withholding against your bracket, verify FICA at 6.2% and 1.45% of the right wage base, and confirm that your pre-tax deductions are actually reducing your taxable wages. Fifteen minutes with the estimator will tell you whether your current setup lands you close to even in April or leaves you with a balance due.