How paychecks are taxed

Every paycheck starts as gross pay, the amount you earn before anything comes out, and ends as net pay, or take-home pay. In between, your employer withholds federal income tax, Social Security and Medicare, and in most states state income tax too. Some states and cities add their own taxes or insurance programs, and any benefits you sign up for come out as well.

This guide walks through each of those lines in the order a payroll system works them out, using the official 2026 rules. To see the numbers for your own pay, use the paycheck calculator, which shows every step it takes and the source behind it.

Withholding is an estimate, not your final tax

Withholding means your employer holds back part of your pay and sends it to the government on your behalf. It is an estimate of the tax you'll owe for the year, spread across your paychecks. The tax you actually owe is settled when you file your return: if too much was withheld you get a refund, and if too little was withheld you pay the difference.

That's why two people with the same salary can see different withholding. The amount depends on the choices on your Form W-4, how often you're paid, and the deductions you take through payroll, not just on your pay.

Federal income tax

Federal income tax is usually the largest amount withheld. Employers work it out with the IRS percentage method in Publication 15-T. In short, the payroll system:

1. turns your pay for the period into a yearly amount;
2. subtracts pre-tax deductions such as a traditional 401(k);
3. subtracts a standard amount built into the tables ($8,600 for most single filers, $12,900 for married couples filing jointly, unless the Step 2 box on the W-4 is checked);
4. applies the tax brackets for your filing status, which run from 10% to 37%;
5. subtracts any credits you entered on the W-4 and divides the result back down to one paycheck.

Brackets are marginal: only the part of your income inside a higher bracket is taxed at that bracket's rate. A raise never makes your whole income taxed at a higher rate, which is why the pay raise calculator always shows take-home pay going up when gross pay goes up.

Your W-4 changes the result. Step 2 is for people with more than one job or a working spouse, Step 3 lowers withholding for children and other dependents ($2,200 per qualifying child under 17 and $500 per other dependent), and Step 4 lets you add other income, extra deductions or an extra amount to withhold each paycheck.

Social Security and Medicare

Social Security and Medicare are often shown together as FICA, after the Federal Insurance Contributions Act. Unlike income tax, they're flat percentages of your pay with no allowances or brackets:

• Social Security takes 6.2% of your pay, up to a yearly wage base of $184,500. Once your wages for the year pass that amount, Social Security stops for the rest of the year, so the most anyone pays is $11,439.
• Medicare takes 1.45% of all your pay, with no cap.
• Additional Medicare Tax adds 0.9% on wages above $200,000 in a year with one employer.

Your employer pays a matching share of Social Security and Medicare on top of your pay. Together, the employee shares come to 7.65% of most paychecks.

State income tax

What happens next depends on where you work and live. States fall into three groups:

• No tax on wages. Some states, such as Texas, Florida and Washington, don't tax wages at all, so the state line on your paycheck is zero.
• One flat rate. States such as Illinois, North Carolina and Arizona apply a single rate, usually after allowances or a standard deduction.
• Brackets. Most states use rising rates like the federal system, each with its own form, allowances and rounding rules. California and Virginia are examples.

Each state publishes its own employer withholding guide, and some ask you to fill in a state form in addition to the federal W-4. A few states, like New Mexico, use your federal W-4 instead.

Local taxes and state programs

In some places cities, counties or school districts tax wages too, and your employer withholds those alongside state tax. Where they apply, the state's calculator page shows them as separate lines.

Several states also run insurance programs funded by payroll deductions, such as disability insurance and paid family leave. Examples include California's SDI, New Jersey's disability and family leave insurance and Washington's Paid Family and Medical Leave. These aren't income taxes, but they reduce take-home pay in the same way.

Pre-tax and after-tax deductions

Deductions you sign up for through work come out either before or after tax:

• Pre-tax deductions, such as a traditional 401(k), health insurance through a cafeteria plan, or an HSA, come out before some taxes are calculated, which lowers those taxes. A traditional 401(k) lowers federal income tax but not Social Security and Medicare; health insurance premiums and HSA contributions through a cafeteria plan lower both.
• After-tax deductions, such as a Roth 401(k) or union dues, come out after every tax is figured, so they don't change any tax.

States don't always follow the federal rules. Most do, but New Jersey, for example, taxes cafeteria plan deductions, so the same health insurance deduction lowers your federal tax but not your New Jersey tax.

Bonuses and overtime

Bonuses are supplemental wages. When they're paid separately from your regular pay, employers can withhold federal income tax at a flat 22% instead of using the brackets, rising to 37% on supplemental pay above $1,000,000 in a year. Federal rules count overtime as supplemental wages too, but employers may treat it as regular wages and withhold on it with the rest of your pay. Either way it's taxed at the same rates as your other income; a bigger paycheck can simply mean more withholding that period. The overtime calculator shows how overtime pay itself is worked out.

A worked example

Here's how the lines add up on one paycheck, computed with the same engine as the calculator. Texas has no state income tax, so this shows the federal lines on their own:

Pay the same salary in a state with an income tax and the state line comes out on top of these. To see how that salary converts to an hourly rate and what it leaves you in each state, see what a 60K salary is per hour.

Why your pay stub might not match exactly

Calculators like this one estimate withholding the way the official methods describe. Your employer's payroll may differ by a few cents or more because:

• employers may use the wage bracket tables instead of the percentage method, or round to whole dollars where the rules allow;
• benefits, garnishments or other deductions you didn't enter can change the wages each tax is figured on;
• pay can vary from period to period, while the calculator assumes the same pay every time;
• a mid-year W-4 change only affects paychecks after it takes effect.

If your stub is far off, compare each line with the calculator's "How we calculated this" panel, and check the W-4 and state forms your employer has on file. For questions about your own taxes, a tax professional can look at your full situation.