Federal Income Tax

This is the largest tax taken from most paychecks. The amount withheld depends on your:

• W-4 settings
• Income level
• Filing status
• Number of dependents
• Extra withholding (optional)

The IRS uses a “pay-as-you-go” system — taxes are taken out throughout the year instead of at once.

State Income Tax

Not all states charge income tax, but in states that do, this deduction works similarly to federal withholding:

• Your state tax form (similar to a W-4)
• Your earnings
• Your allowances or dependents
• Your local tax rules

Some cities also charge local income taxes.

Social Security Tax

Social Security tax is fixed at 6.2% of your wages — until your earnings reach the annual limit.

• Helps fund retirement and disability benefits
• Stops after yearly earnings pass the wage cap
• Your net pay will increase temporarily when it stops

Medicare Tax

Medicare tax is 1.45% of your wages. High earners pay an additional 0.9% once they cross a certain threshold.

• No income cap (it applies to all earnings)
• Funds hospital insurance for seniors
• Higher earners pay slightly more

Other Taxes You May See

Depending on your state or employer, you may also see:

• Local or city income taxes
• State disability insurance (SDI)
• Paid family leave contributions
• Unemployment insurance contributions

These vary widely depending on your location.

Putting It All Together

Each type of tax plays a role in your final take-home pay. Once you understand why each deduction is there, your paycheck becomes much simpler to read.

You can also adjust your withholding through your W-4 to make taxes match your financial goals.