What Taxes Get Taken Out of Your Paycheck?
If you’ve ever glanced at your paycheck and wondered why the amount you take home is so much lower than your gross salary, you’re not alone. Between federal and state obligations, and a few other mandatory deductions, your paycheck can shrink quickly — and not all of it is easy to decode.
Understanding exactly which taxes are being taken out of your paycheck is more than just a financial curiosity. It helps you budget smarter, avoid surprises at tax time, and make informed decisions about withholding, benefits, and retirement planning.
In this guide, we’ll break down the specific taxes that are routinely deducted from employee paychecks in the U.S. — no fluff, no distractions — just a clear look at what’s taxed, how much, and why it matters to your bottom line.
Federal Income Tax
The largest and most consistent tax withheld from your paycheck is the federal income tax. This tax goes to the U.S. Treasury and helps fund everything from infrastructure to national defense. But the amount you pay isn’t one-size-fits-all — it depends on your income, tax filing status, and the details you provide on your Form W-4.
When you start a new job, your employer asks you to fill out Form W-4, which tells them how much federal income tax to withhold from each paycheck. The IRS uses a progressive tax system, which means the more you earn, the higher your tax rate. Your employer uses IRS tax tables and your W-4 to estimate your total annual tax bill, then withholds small portions of it from each paycheck throughout the year.
Key factors that affect how much is withheld:
- Filing status (single, married, head of household)
- Dependents or child tax credits claimed
- Additional withholding you request
- Multiple jobs or working spouses (which require extra adjustments)
At tax time, the total amount withheld is compared to what you actually owe. If too much was taken out, you’ll get a tax refund. If too little was withheld, you’ll owe the IRS money.
*Tip: If your tax situation changes — like getting married or taking on a second job — it’s a good idea to update your Form W-4 to avoid surprises at tax time.*
Social Security Tax
Another major deduction you’ll see on your paycheck is the Social Security tax, which helps fund retirement and disability benefits for U.S. workers. This tax is part of the FICA (Federal Insurance Contributions Act) payroll tax and applies to most employees.
For employees, the Social Security tax rate is 6.2% of gross wages, and your employer is required to match that amount. That means a total of 12.4% of your income goes into the Social Security system — half from you, half from your employer.
However, this tax only applies up to a certain amount of earnings. In 2025, that wage cap is $168,600. If you earn more than that, the excess is not subject to Social Security tax.
Key facts about Social Security tax:
- All W-2 employees pay 6.2%, regardless of income tax bracket
- Employers contribute an equal 6.2% on your behalf
- There is an annual wage limit (adjusted each year by the IRS)
- Exemptions are rare and usually limited to certain foreign students or specific visa holders
While it may seem like a large chunk of your paycheck, your contributions help ensure you’ll receive monthly benefits in retirement — or support if you become disabled.
*Tip: You can check your lifetime Social Security contributions and estimated benefits anytime by creating an account at SSA.gov.*
Medicare Tax
In addition to Social Security, your paycheck also includes a Medicare tax, which helps fund health insurance for people aged 65 and older, as well as certain younger individuals with disabilities. Like Social Security, it’s part of the FICA payroll tax and is shared between employees and employers.
The standard Medicare tax rate is 1.45% of all gross earnings, with no income cap. That means every dollar you earn is subject to this tax — even if your income goes well beyond six figures. Your employer matches this with another 1.45%, bringing the total contribution to 2.9%.
If you’re a high earner, you may also be subject to an additional Medicare tax:
- An extra 0.9% is withheld on wages over $200,000 for single filers (or $250,000 if married and filing jointly)
- Employers do not match this additional tax — it’s paid only by the employee
Key facts about Medicare tax:
- Everyone pays 1.45% — there’s no earnings limit
- Employers match your contribution
- High-income earners may see an extra 0.9% withheld
- Funds go toward Medicare hospital insurance (Part A)
*Tip: If you see “Medicare Additional Tax” on your pay stub, it’s likely because your income exceeded the threshold. This amount is reconciled when you file your federal tax return.*
State Income Tax
Depending on where you live and work, you may also see state income tax withheld from your paycheck. This tax helps fund public services like schools, roads, and law enforcement within your state. Unlike federal taxes, state income tax rules and rates vary widely.
Currently, most U.S. states impose an income tax, but a handful do not. If you’re in a state with income tax, your employer will automatically withhold a portion of your wages and send it to the state’s revenue department. This withholding is based on the information you provide on your state version of the W-4 (which may go by a different name depending on the state).
States generally use one of two systems:
- Flat tax rate (e.g., Colorado or Illinois) — everyone pays the same percentage
- Progressive tax rate (e.g., California or New York) — higher earners pay a higher percentage
Key points about state income tax:
- Not all states collect income tax (e.g., Florida, Texas, and Nevada do not)
- Tax rates and brackets differ from state to state
- Your work location often determines which state’s tax applies — not necessarily where you live
- Some cities and counties also charge local income tax (more on that next)
*Tip: If you move between states or work remotely, double-check your tax withholding to avoid overpaying or underpaying. Some states have reciprocal agreements that affect how you’re taxed.*
Local Taxes
In addition to federal and state income taxes, some employees may also see local income taxes deducted from their paychecks. These taxes are imposed by cities, counties, or even school districts, and they help fund services like public transportation, safety, and education at the local level.
Not everyone pays local taxes — they’re only collected in certain areas. For example:
- New York City and Philadelphia have local income taxes for residents and workers
- In Ohio, many municipalities charge local taxes, which are often withheld by employers
- Some school districts in Pennsylvania and Indiana also levy taxes on wages
Local tax rates are generally low, ranging from about 0.5% to 3%, but they can still make a noticeable dent in your paycheck. Like state taxes, your employer is responsible for calculating and withholding the appropriate amount based on where you live and/or work.
Key points about local taxes:
- Only apply in certain jurisdictions — not nationwide
- Often based on your residence, work location, or both
- Rates and rules vary by city, county, or district
- Withheld automatically by your employer if applicable
*Tip: If you’re unsure whether local taxes apply to you, check your paystub or ask your HR department. And if you move, update your address to avoid incorrect withholdings.*
Other Potential Payroll Deductions (Not Taxes)
Not everything taken out of your paycheck goes to the IRS or your state government. In fact, a large portion of your deductions may be related to benefits you’ve opted into or other financial obligations. These aren’t taxes — but they still shrink your take-home pay. Let’s break them down:
💊 Health Insurance Premiums:
— If you signed up for medical, dental, or vision coverage through your employer, your share of the monthly premium is deducted from your paycheck — often on a pre-tax basis, which lowers your taxable income.
💼 Retirement Plan Contributions:
— Many employers offer retirement savings plans like a 401(k) or 403(b). Contributions are typically deducted before taxes (unless you’re using a Roth option). These deductions reduce your taxable income now, and grow your nest egg for later.
💳 FSAs and HSAs:
— Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) let you set aside money for healthcare or dependent care costs. These are also pre-tax deductions, and they can be a great way to save on expected medical expenses.
🛠️ Union Dues:
— If you belong to a union, dues may be withheld directly from your pay. These are usually post-tax deductions, meaning they don’t reduce your taxable income.
⚖️ Wage Garnishments:
— In some cases, a court may require your employer to deduct money from your paycheck to pay for things like child support, tax debt, or defaulted student loans. These garnishments are legally mandated and typically deducted after taxes.
*Heads-up: Not all employers break down these deductions clearly. It’s a smart habit to review your paystubs regularly and confirm that your withholdings match what you’ve signed up for — especially after benefits enrollment or life changes.*
Take Control of What Comes Out of Your Paycheck
Understanding the taxes and deductions on your paycheck isn’t just for accountants — it’s a smart move for anyone who wants to manage their money more confidently. From federal income tax to Medicare and state withholdings, knowing where your earnings go can help you plan better, spot errors early, and avoid surprises at tax time.
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