How to Manually Calculate Payroll Taxes: Federal, FICA, and FUTA

To manually calculate payroll taxes, you start with an employee’s gross pay for the period, subtract pre-tax deductions to reach taxable wages, apply the federal income tax percentage-method worksheet from IRS Publication 15-T, then add flat Social Security and Medicare rates on gross wages and any state or local tax that applies. For 2026, the Social Security wage base is $184,500, and the combined employee-side FICA rate is 7.65% on most wages. The math is straightforward once you follow the sequence. What matters is getting each input right, because a single wrong number carries through every paycheck and every quarterly filing.

What You Need Before You Start

Pull three things together for each employee: a current Form W-4, the gross pay for the period, and the 2026 edition of IRS Publication 15-T.

The W-4 gives you the filing status from Step 1(c) — single (or married filing separately), married filing jointly (or qualifying surviving spouse), or head of household. Steps 2 through 4 may add inputs: a checkbox for multiple jobs, dollar amounts for other income, extra deductions the employee wants factored in, and any flat dollar amount of additional withholding per paycheck.¹ If an employee never submitted a 2020-or-later W-4, treat them as single with no other adjustments.

Gross pay is total earnings for the pay period before any deductions. Know your pay frequency too: weekly (52 periods), biweekly (26), semimonthly (24), or monthly (12). The withholding formulas annualize wages and then divide back down, so the period count drives the math.

You will actually work with two different wage figures. For federal income tax withholding, subtract pre-tax deductions like traditional 401(k) contributions and employer-sponsored health insurance premiums from gross pay.² But those same 401(k) deferrals are still subject to Social Security and Medicare taxes.³ So the FICA wage figure is higher than the income tax wage figure. Keep them separate as you work.

Finally, download Publication 15-T for the current year. Publication 15 (Circular E) is the broader employer’s tax guide, and it points you to Publication 15-T for the actual withholding rate schedules and worksheets.⁴

Federal Income Tax: The Percentage Method

Publication 15-T offers two approaches. The Wage Bracket Method lets you read withholding straight from a table, but only up to a wage ceiling. The Percentage Method works for any income level and is what most people use for manual calculations.

The percentage method converts each paycheck into an annual figure, applies the tax brackets, and then scales the result back to one pay period. Publication 15-T’s Worksheet 4 walks through this for 2020-or-later W-4s:⁵

Annualize the wages. Multiply the employee’s taxable wages for the pay period by the number of pay periods per year. A biweekly check of $2,500 becomes $65,000.
Add other income. If the employee entered a dollar amount on W-4 Step 4(a), add it to the annualized figure.
Subtract deductions. Take the amount from Step 4(b), if any, and add it to a built-in deduction from Pub 15-T. For 2026, when the Step 2 box is not checked, that built-in figure is $12,900 for married filing jointly or $8,600 for single and head of household filers. Subtract the combined total from annualized wages. The result is the Adjusted Annual Wage Amount.
Apply the tax brackets. Look up the Adjusted Annual Wage Amount in the percentage method table for the employee’s filing status. The table shows income ranges, a base tax amount for each range, and a marginal rate (10%, 12%, 22%, and so on) applied to the amount over that range’s floor.
Convert back to one pay period. Divide the annual tax by the number of pay periods.
Add extra withholding. If the employee entered an amount on W-4 Step 4(c), add it to the per-period result.

A Worked Example

Say an employee files as single with a biweekly gross of $3,000, no Step 2 checkbox, and no Step 4 entries. Annualized wages: $3,000 × 26 = $78,000. Subtract the $8,600 built-in deduction: $78,000 − $8,600 = $69,400 Adjusted Annual Wage Amount. Find $69,400 in the single-filer percentage method table, calculate the annual tax using the bracket that range falls in, and divide by 26 to get the per-paycheck withholding.

Bracket thresholds shift slightly each year with inflation adjustments, so always use the current year’s Pub 15-T. Last year’s tables will give you the wrong answer.⁵

Social Security and Medicare

FICA is the easier calculation. Flat rates, applied to gross taxable wages (which include pre-tax 401(k) contributions).

Social Security

Multiply gross wages for the pay period by 6.2%. Keep a running total of year-to-date wages, because once an employee crosses $184,500 in 2026, you stop withholding Social Security tax for the rest of the year.⁶ If a paycheck straddles the cap — say the employee has earned $183,000 and the current check is $3,000 — withhold 6.2% only on the $1,500 that brings them to $184,500, and leave the rest alone.

Medicare

Multiply the same gross wages by 1.45%. There is no wage cap for Medicare; every dollar is subject all year.⁶

Additional Medicare Tax

Once an employee’s year-to-date wages pass $200,000, withhold an extra 0.9% on every dollar above that threshold. The $200,000 trigger applies to employer withholding regardless of the employee’s actual filing status. Married couples filing jointly do not owe the additional tax until $250,000 in combined wages, but as an employer you start withholding at $200,000 and let the employee reconcile on their tax return.⁷ The employer does not match this 0.9%.

State and Local Withholding

Nine states impose no income tax on wages. If your employees work and live in one of those states, this section does not apply.

For everyone else, state withholding falls into two camps. Flat-tax states apply a single percentage to taxable wages, with the rate varying by state. Progressive-tax states work more like the federal system, with graduated brackets. Each state publishes its own withholding guide — the state equivalent of Pub 15-T — with tables or formulas specific to that state’s rates and deductions. Download your state’s version and follow it alongside the federal process.

Some cities and counties layer their own local income taxes on top of the state amount. These are usually under 2%, but easy to miss when employees sit in multiple locations.

If an employee lives in one state and works in another, check whether the two states have a reciprocity agreement. Roughly 16 states participate, and reciprocity lets the employee pay income tax only to their home state. Without it, you may need to withhold for the work state and leave the employee to claim a credit on their resident state return. Getting this wrong can mean penalties from one or both states.

Employer-Paid Payroll Taxes

Everything above is what comes out of the employee’s check. The employer owes more from its own funds.

Employer FICA Match

You pay the same 6.2% Social Security and 1.45% Medicare rates on each employee’s wages, subject to the same $184,500 Social Security wage cap.⁸ Combined with the employee’s share, that is 12.4% for Social Security and 2.9% for Medicare on every paycheck. The employer does not owe the 0.9% Additional Medicare Tax; that is the employee’s alone.⁹

Federal Unemployment Tax (FUTA)

FUTA is employer-only. The statutory rate is 6.0% on the first $7,000 of wages you pay each employee during the calendar year.¹⁰¹¹ The $7,000 base has not changed since 1983. If you pay state unemployment taxes on time, you receive a credit of up to 5.4%, which drops the effective FUTA rate to 0.6% — a maximum of $42 per employee per year.¹² Once an employee’s year-to-date wages hit $7,000, stop accruing FUTA for that person.

State Unemployment Tax (SUTA)

Every state sets its own unemployment tax rate and wage base. The taxable wage base ranges from $7,000 (matching the federal floor) up to $68,500 depending on the state. Your rate within your state’s range depends on your industry and claims history. New employers usually start at a default rate that adjusts over time based on how many former employees file unemployment claims. Check your state’s workforce agency for your assigned rate and wage base each year.

Keep the Paper Trail

Your calculations are only as defensible as your documentation. The IRS requires employment tax records to be kept for at least four years after the tax is due or paid, whichever is later.¹³ Federal wage and hour law adds another layer: records of hours worked, pay rates, and total compensation must be kept for at least three years.¹⁴

For each pay period, save a copy of the calculation — gross wages, each deduction, each tax line, and the net pay — alongside the W-4 you used. If a quarterly return gets questioned two years later, you’ll need to reconstruct exactly how you arrived at every number. A tidy file per employee takes minutes to keep up and pays for itself the first time you need it.

1
Internal Revenue Service. Form W-4 – Employee’s Withholding Certificate (2026)
2
Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
3
Internal Revenue Service. Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare, or Federal Income Tax
4
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
5
Internal Revenue Service. 2026 Publication 15-T, Federal Income Tax Withholding Methods
6
Social Security Administration. Contribution and Benefit Base
7
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
8
Office of the Law Revision Counsel. 26 U.S. Code 3111 – Rate of Tax
9
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
10
Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax
11
Office of the Law Revision Counsel. 26 U.S. Code 3306 – Definitions
12
Employment and Training Administration. Unemployment Insurance Tax Topic
13
Internal Revenue Service. How Long Should I Keep Records
14
eCFR. 29 CFR Part 516 – Records To Be Kept by Employers