Most employers are required by law to calculate and withhold federal taxes from your wages. Three federal taxes are deducted from paychecks: income tax, Social Security tax and Medicare tax. Because each tax has a different rate, there are multiple federal withholding percentages. In fact, federal income tax has several percentage rates, one or more of which may be used to calculate the amount of income tax that must be withheld.
Currently, the federal withholding rate for Social Security tax sits at 6.2 percent.
Taxable and Gross Income
Federal income tax is deducted from taxable wages. To determine taxable wages, employers deduct the value of the withholding allowances an employee claims on her W-4 form from gross wages. The withholding allowance amount depends on the length of the pay period. For example, for 2018, the allowance amount is $79.80 for weekly pay periods or $159.60 for biweekly periods. Suppose an employee earns gross wages of $800 in one week and claims two withholding allowances. The taxable wages for federal income tax are $800 less $159.60, or $640.40. Additional amounts may be subtracted for non-taxable items like contributions to a retirement or health savings plan.
Federal Income Tax Brackets
Federal income tax is a progressive tax. This means the more a person earns, the higher the tax percentage becomes – and the more money employers withhold from your paycheck. The dollar amount subject to each tax bracket depends on your filing status as single or married. For example, employers in 2018 will deduct zero tax on the first $71 of taxable wages and 10 percent on the amount from $71 to $254 for a single employee paid weekly. For a married worker paid weekly, the 10 percent tax bracket ranges from $222 to $588. Income tax withholding percentages increase as the taxable wages rise from 10 percent to 12 percent, then to 22 percent, 24 percent, 32 percent, 35 percent and finally to 37 percent.
Social Security Tax Rate
The withholding rate for Social Security tax for 2018 is 6.2 percent. Social Security tax is calculated using gross wages with no deductions. There is an annual income ceiling for Social Security tax, adjusted annually. For example, the cap in 2018 is $128,400. Employers stop deducting Social Security tax up to that amount once an employee reaches that cap, and Social Security taxes are not deducted for any mounts beyond the cap.
Medicare Tax Rates
Medicare tax is levied on all gross income with no deductions and no income cap. The withholding rate is 1.45 percent. There is also an Additional Medicare Tax that must be withheld on wages in excess of $200,000 per year at a rate of 0.9 percent.
- IRS: Notice 1036 - Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding
- IRS: Publication 15 - Employer's Tax Guide
- IRS. "FAQs on the 2020 Form W-4." Accessed Oct. 16, 2020.
- IRS. "Tax Withholding for Individuals." Accessed Oct. 16, 2020.
- IRS. "Topic No. 753 Form W-4—Employee's Withholding Allowance Certificate." Accessed Oct. 16, 2020.
- Social Security Administration. "Fact Sheet Social Security." Accessed Oct. 16, 2020.
- Social Security Administration. "Contribution And Benefit Base." Accessed Oct. 16, 2020.
- IRS. "Topic No. 608 Excess Social Security and RRTA Tax Withheld." Accessed Oct. 16, 2020.
- IRS. "Publication 531 (2019), Reporting Tip Income." Accessed Oct. 16, 2020.
- IRS. "Group-Term Life Insurance." Accessed Oct. 16, 2020.
- IRS. "Questions and Answers for the Additional Medicare Tax." Accessed Oct. 16, 2020.
Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.