Employee taxes are the amounts your employer subtracts from each paycheck and sends to federal, state, and local governments on your behalf. The biggest pieces are federal income tax, Social Security tax, and Medicare tax, and most workers also owe state and often local income tax. Your employer keeps none of it. The gap between your gross pay and what lands in your bank account each pay period is almost entirely these withholdings, plus any pre-tax benefits you signed up for.
Federal Income Tax
Federal income tax is the largest deduction on most paychecks. The United States runs a pay-as-you-go system: you owe tax as you earn, not in a single bill at year’s end.1Internal Revenue Service. Pay As You Go, So You Won’t Owe: A Guide to Withholding, Estimated Taxes and Ways to Avoid the Estimated Tax Penalty Federal law requires every employer paying wages to withhold income tax using tables the IRS publishes.2Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source How much comes out of your check depends on your earnings, your filing status, and what you put on your Form W-4.
The federal system is progressive: the rate climbs as your income climbs, but only on the portion inside each bracket. For 2026, single filers pay 10% up to $12,400, 12% from $12,401 to $50,400, 22% from $50,401 to $105,700, and rates that continue up to 37% on income above $640,600. Married-filing-jointly thresholds are roughly double at each step, and the top bracket begins at $768,700.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One, Big, Beautiful Bill
A frequent misunderstanding: moving into a higher bracket does not put all your income at the higher rate. Only the dollars above the threshold are taxed at the new percentage. A single earner making $60,000 pays 10% on the first $12,400, 12% on the next slice, and 22% only on what sits above $50,400.
Social Security and Medicare (FICA)
The next deductions on your stub are for Social Security and Medicare, together called FICA (Federal Insurance Contributions Act) taxes. These pay for retirement benefits, disability, and hospital insurance. Unlike income tax, FICA rates are flat percentages that don’t move with deductions or credits.
Social Security is 6.2% of your gross wages, and your employer pays a matching 6.2% on top. So 12.4% total goes to Social Security, split evenly between you and the business.4Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates There is an annual cap. For 2026, only the first $184,500 in wages is subject to Social Security tax. Once your year-to-date earnings pass that number, this deduction stops on your remaining checks. The maximum an employee will contribute in 2026 is $11,439.5Social Security Administration. Contribution and Benefit Base
Medicare is 1.45% of all wages with no cap. Every dollar you earn is subject to it, and your employer again matches at 1.45%.4Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates High earners owe an Additional Medicare Tax of 0.9% on wages above a filing-status threshold: $200,000 for single filers or head of household, $250,000 for married filing jointly, and $125,000 for married filing separately.6Office of the Law Revision Counsel. 26 USC Chapter 21 – Federal Insurance Contributions Act Your employer doesn’t match this piece; the entire 0.9% comes from your side. Withholding starts once your wages pass $200,000 for the year regardless of your filing status, and any over- or under-withholding is settled when you file your return.7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
State and Local Income Taxes
Most workers also owe state income tax. About 42 states plus the District of Columbia impose an individual income tax, with top rates that run from roughly 2.5% to over 13%. Some states use a flat rate; others use a progressive structure like the federal one. Eight states charge no individual income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington taxes capital gains but not wages.
State withholding works much like federal. Your employer checks where you work, and sometimes where you live, and takes state tax from each check accordingly. If you live in one state and work in another, you may face both states’ rules. Some pairs of states have reciprocity agreements: you file only in your home state, and the work state doesn’t tax the wages. Without reciprocity, you generally file in both states and take a credit for tax paid to the non-resident state so the same dollars aren’t taxed twice.
Some cities and counties add a local income or occupational tax on top, often around 1%, though a few cities charge more. Individually small, they still widen the gap between gross and net pay.
Pre-Tax Deductions That Lower What Gets Withheld
Certain benefit contributions come out of your gross pay before your employer calculates withholding. These pre-tax deductions shrink your taxable wages, which means less tax is withheld and more of your paycheck reaches you.
The common ones are contributions to employer-sponsored retirement plans and health-related accounts. For 2026, the employee 401(k) contribution limit is $24,500, with an extra $8,000 catch-up allowed at age 50 and older, and a higher $11,250 catch-up for workers aged 60 through 63.8Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Health Savings Account contributions are capped at $4,400 for self-only coverage and $8,750 for family coverage in 2026.9Internal Revenue Service. Expanded Availability of Health Savings Accounts
Not every pre-tax deduction escapes every tax. Benefits offered through a cafeteria plan, sometimes called a Section 125 plan, including health insurance premiums, dependent care assistance, and HSA contributions, are generally exempt from both federal income tax and FICA.10Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans Traditional 401(k) contributions lower your federal income tax withholding but still get hit with FICA. In practice, a $100 health insurance premium taken pre-tax saves you about $7.65 more per paycheck than a $100 traditional 401(k) contribution.
Form W-4: What Controls Your Withholding
The amount of federal income tax pulled from each check is largely driven by your Form W-4, officially the Employee’s Withholding Certificate.11Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate You fill one out when you start a job. It asks for your name, Social Security number, address, and filing status, and has sections for dependents, multiple jobs, and adjustments for other income or deductions you expect on your annual return.
Getting the W-4 right is the best way to avoid surprises in April. Claim too many adjustments and too little is withheld, leaving you a balance due. Claim too few and you’ll get a big refund, which means you handed the government an interest-free loan all year. The IRS offers a free Tax Withholding Estimator online that walks through your situation and suggests W-4 entries.
Your employer’s payroll system already bakes the standard deduction into its math. For 2026, that’s $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, Including Amendments from the One, Big, Beautiful Bill If you’ll itemize and your deductions will beat the standard amount, you can note the difference on the W-4 so less tax comes out each check.
When to Update Your W-4
You can adjust your W-4 whenever you like, but some changes require a new one. If your circumstances shift so that your current withholding will fall short, such as a divorce that changes your filing status, losing a dependent, or a spouse starting a new job, you must submit a new W-4 within 10 days. If you claimed exemption from withholding last year but expect to owe tax this year, you need to file a new W-4 by February 15 to keep withholding on track.12Internal Revenue Service. Publication 505, Tax Withholding and Estimated Tax
Your Year-End W-2
By early the following year, your employer must send you a Form W-2 summarizing what you earned and what was withheld. For 2026 wages, the deadline for employers to provide the form is February 1, 2027.13Internal Revenue Service. General Instructions for Forms W-2 and W-3 Box 1 shows taxable wages for federal income tax; Box 2 shows federal income tax withheld. Boxes 3 and 5 show wages subject to Social Security and Medicare (which can differ from Box 1 because of the Social Security cap and pre-tax rules), with the corresponding taxes in Boxes 4 and 6.
These numbers flow straight onto your tax return. Box 2 gets compared to what you actually owe: if your employer withheld more, you get a refund; if less, you pay the balance. Keep the form for at least three years, since the IRS can generally audit returns going back that far.
What Happens If Withholding Falls Short
If too little was withheld and you owe more than $1,000 when you file, the IRS may charge an underpayment penalty, essentially interest on what should have been paid earlier, at rates the IRS updates quarterly.14Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
You avoid the penalty if your withholding covers at least 90% of what you owe for the current year, or at least 100% of your prior year’s total tax, whichever is smaller. If your adjusted gross income was above $150,000 the prior year ($75,000 if married filing separately), that prior-year threshold rises to 110%.14Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty This safe harbor is worth remembering when your income moves around. You may still owe a balance in April, but meeting it means no penalty on top.
Employer Taxes That Don’t Come Out of Your Check
Not every employment tax is an employee tax. Federal Unemployment Tax (FUTA) is a separate 6.0% tax on the first $7,000 of each worker’s annual wages, and the employer pays it entirely.15Internal Revenue Service. Topic No. 759, Form 940, Employers Annual Federal Unemployment Tax Act (FUTA) Tax Return You won’t see FUTA on your stub. Most states also charge their own unemployment insurance tax, again on the employer’s side. And the employer’s matching share of Social Security and Medicare is an additional cost to the business, not a deduction from your wages.