Payroll tax deductions are the amounts your employer takes out of each paycheck before the money reaches you. For 2026, the biggest ones for most workers are Social Security tax at 6.2% on wages up to $184,500, Medicare tax at 1.45% on every dollar you earn, and federal income tax withheld according to the W-4 you filed. On top of those, you may see state income tax, pre-tax health insurance premiums, retirement contributions, and any court-ordered withholdings. Added together, they explain the gap between your gross pay and what actually lands in your account.
Social Security and Medicare
The Federal Insurance Contributions Act, usually shortened to FICA, funds Social Security and Medicare through two separate line items on your pay stub.
Social Security tax is 6.2% of your wages up to the annual wage base, which is $184,500 for 2026. Once your year-to-date earnings pass that number, Social Security withholding stops for the rest of the calendar year. If you earn at least $184,500 in 2026, the most you can pay in employee Social Security tax for the year is $11,439.1Social Security Administration. Contribution and Benefit Base
Medicare tax is 1.45% of every dollar you earn, with no cap.2Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax Your employer pays a matching 6.2% for Social Security and 1.45% for Medicare on the same wages out of its own funds.3Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax That match doesn’t appear on your pay stub because it doesn’t come out of your wages.
Additional Medicare Tax on Higher Wages
If your wages from a single employer pass $200,000 in a calendar year, an extra 0.9% Medicare tax applies to every dollar above that line.2Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax Your employer must start withholding it at that threshold regardless of your filing status, and it isn’t matched by the employer. If you file jointly and your household wages together exceed $250,000, you may still owe the additional tax when you file your return even if neither spouse individually hit $200,000 at work.
Federal Income Tax Withholding
Federal law requires your employer to withhold income tax from each paycheck.4Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source Unlike FICA, this isn’t a flat rate. The amount depends on your filing status, the dependents you claim, and any additional income, deductions, or extra withholding you reported on your W-4. The idea is to come close to what you’ll owe when you file, so you don’t end up with a surprise bill or a large refund.
Employers run each paycheck through the tables and formulas in IRS Publication 15-T, which is updated every year.5Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide For 2026, the standard deduction built into those tables is $16,100 for single filers and $32,200 for married couples filing jointly.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
How Your W-4 Shapes What Comes Out
Form W-4 is the single document that controls your federal income tax withholding. You fill it out when you start a job and can submit a new one anytime your situation changes. It asks for your filing status, qualifying dependents, any extra income you want factored in (freelance work, investment gains), and any deductions beyond the standard amount. Each entry pushes the calculation up or down.
Getting it right matters. If too little comes out during the year, you’ll owe when you file and may face an underpayment penalty. If too much comes out, you’ve handed the government an interest-free loan until your refund arrives. The IRS runs a free Tax Withholding Estimator that walks through your situation and tells you how to adjust the form.7Internal Revenue Service. Tax Withholding Running it after marriage, a new child, or a second job is the easiest way to avoid an April surprise.
Pre-Tax Deductions That Shrink Your Taxable Pay
Some paycheck deductions come out before tax is calculated, which lowers the wages your taxes are figured on. Every dollar you contribute costs you less than a dollar in take-home pay.
Employer-sponsored health insurance is the most common example. When your premiums are paid through a Section 125 cafeteria plan, they’re excluded from your gross income for both income tax and FICA.8Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans
Retirement contributions work a little differently. Traditional 401(k) deferrals reduce your wages for federal income tax withholding but are still subject to Social Security and Medicare tax. For 2026, you can defer up to $24,500, with an additional $8,000 catch-up if you’re 50 or older and $11,250 if you’re between 60 and 63. Health Savings Account contributions, available if you’re on a high-deductible health plan, are excluded from both income tax and FICA. The 2026 HSA limit is $4,400 for individual coverage and $8,750 for family coverage, plus an extra $1,000 if you’re 55 or older.
This is why your W-2 numbers won’t always line up with each other, which is covered further down.
State and Local Withholding
Most states also require income tax withholding. Structures vary: some states use a flat percentage, some apply a progressive scale, and a handful have no personal income tax at all. State-run disability insurance or paid family leave programs, where they exist, typically withhold somewhere between roughly 0.4% and 1.3% of wages.
Several states and some cities levy their own local income or occupational taxes on top. If you live in one state and work in another, some state pairs have reciprocal agreements that let you pay only to your home state. Where no agreement exists, your employer withholds for the work state and you file in both, claiming a credit for taxes paid to the other.
Wage Garnishments and Court-Ordered Withholdings
Sometimes employers receive legal orders telling them to withhold money from your paycheck and send it to a creditor, a government agency, or a former spouse. These follow strict caps.
For ordinary consumer debt, federal law limits garnishment to the lesser of 25% of your disposable earnings or the amount by which your weekly disposable earnings exceed 30 times the federal minimum wage.9Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment At the current federal minimum wage of $7.25, anyone earning $217.50 or less per week in disposable income is fully exempt from consumer-debt garnishment. Disposable earnings means gross pay minus legally required deductions like taxes, not what’s left after voluntary items like your 401(k).
Other categories follow their own rules. Child support and alimony orders can take between 50% and 65% of disposable earnings, depending on whether you support another family and whether you’re behind on payments. Federal tax levies and student loan garnishments have their own formulas. When more than one order lands on the same worker, bankruptcy orders generally go first, then existing child support or tax levies, then other creditors.
Reading Your W-2 at Year-End
By January 31, your employer has to give you a Form W-2 showing your total wages and every tax withheld during the calendar year.10Internal Revenue Service. Topic No. 752, Filing Forms W-2 and W-3 It’s worth reading closely.
Box 1 shows wages subject to federal income tax. Box 3 shows wages subject to Social Security tax, capped at $184,500 for 2026. Box 5 shows Medicare wages, with no cap.11Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 If you contributed to a traditional 401(k) or an HSA during the year, Box 1 will be lower than Box 3, because those contributions reduce your income tax wages but not your Social Security wages. Comparing these boxes against your final pay stub is the simplest way to catch a mistake before you file.
If You’re Classified as an Independent Contractor
Everything above assumes you’re an employee. Independent contractors have nothing withheld from what they’re paid. Instead, they pay self-employment tax, which combines the employee and employer shares of FICA, when they file their tax return.
The IRS decides which category you’re in by looking at three areas: whether the business controls how you do the work, whether it controls the financial side (payment method, expense reimbursement), and whether the overall relationship looks like traditional employment through things like benefits or an ongoing commitment.12Internal Revenue Service. Independent Contractor (Self-Employed) or Employee No single factor decides it.
If you’re treated as a contractor but the working arrangement feels more like employment, you can file Form SS-8 to ask the IRS for a formal determination. Misclassification cuts both ways: the business owes back employment taxes with penalties and interest, and you’ve been overpaying self-employment tax and missing out on the employer match on Social Security and Medicare.