The types of taxes that affect your paycheck depend on which withholding tax laws you’re subjected to. Withholding taxes occur on a federal, often state, and sometimes local level. Corresponding rules are governed by the federal, state and local revenue agency that oversees the collection of taxes. To figure the amount of taxes that will come out of your paycheck, you must know which taxes apply to you and the respective laws.
Federal Income Tax Calculation
You're likely required to pay federal income tax, Social Security tax and Medicare tax. Only employees who are exempt from these taxes do not have to pay them, and these exemptions are few. To figure federal income tax withholding, obtain your filing status and number of allowances from lines 3 and 5, respectively, of your W-4. Then use the Internal Revenue Service Circular E withholding tax table to find the withholding amount based on your taxable wages, allowances and filing status. Your taxable wages are your gross wages minus pretax deductions, such as 401(k) and Section 125 health insurance. For example, in 2015, you earn weekly taxable wages of $500 and claim married with one allowance. According to Page 49 of the 2015 Circular E, your withholding is $26. IRS Circular E is available online.
To calculate Social Security and Medicare tax, also called Federal Insurance Contributions Act taxes, consult IRS Circular E. For 2015, Social Security tax is withheld at 6.2 percent of taxable wages up to $118,000 for the year. Medicare tax is deducted at 1.45 of all taxable wages. If you make more than $200,000 for the year, your employer must take an additional Medicare tax of 0.9 percent on the extra amount.
State Tax Deductions
As of publication, you do not have to pay state income tax if you live in Alaska, Florida, Nevada, New Hampshire, Tennessee, Texas, South Dakota, Washington or Wyoming. Otherwise, your state income tax withholding rate depends on state law. Some states apply a withholding system that's similar to federal law, except that you may be required to use your state tax form instead of a W-4 and the state withholding tax table. In some states, such as Pennsylvania and Arizona, flat withholding rates apply. You can find your state income tax rate on the state revenue agency’s website.
Local Withholding Taxes
Some local governments impose local taxes on employees who live or work in the jurisdiction. These taxes may come in the form of a school district tax, city tax or county tax. For example, employees in New York must pay state income tax and those who live in New York City and Yonkers must also pay city income tax. Another example is the Ohio school district tax. In this case, either the same method of computation for Ohio income tax or a flat rate should be used. Your local tax assessor’s website should have the withholding rates.
Other Deductions That May Apply
Depending on your state, you might need to pay additional withholding. For example, employees in California must pay state disability insurance and those in Alaska, Pennsylvania and New Jersey must pay state unemployment tax. These rates are generally withheld at a flat percentage of annual taxable wages. For example, for 2015, employees in Alaska pay state unemployment tax at 0.57 percent on wages up to $38,700 for the year.
- IRS.gov: Circular E, Employer's Tax Guide
- IRS.gov: Form W-4
- StateW4: Blank Withholding Forms
- Abacus Payroll: Pennsylvania Payroll Tax Rates in 2015
- Arizona Department of Revenue: Form A-4
- New York State Department of Taxation and Finance: Withholding Tax Computation Rules, Tables, and Methods
- Ohio Department of Taxation: Expirations, New School Districts, Renewals and Rate Changes Effective 1/1/2015
- California Employment Development Department: Rates, Withholding Schedules, and Meals and Lodging Values
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