The amount of money that’s deducted from your paycheck depends on a variety of factors, such as whether you’re a contractor or employee, if you claim dependents, if you have a spouse with earnings, if you have multiple jobs, if you work in a state with state income taxes and if you’re having any benefits deducted.
You can ask your HR or accounting department, “How much of my paycheck goes to taxes?” even before you receive your first paycheck (after you fill out your W-4), or make an annual calculation using your first paystub.
Paycheck vs. Payment
If you are an independent contractor working for a business, you might receive your payments via a check, but that’s not what people typically mean when they use the word “paycheck.” A paycheck refers to a regular payment (usually weekly, bi-monthly or monthly) received by an employee of a company. This can include a check that covers an annual salary, or a check that covers hourly wages, which can change each week.
Contractors don’t have taxes deducted from their payment checks. For example, if a graphic designer creates a brochure for a business for $300, she’ll get a check (or cash or digital payment) of $300. It’s not the business’s responsibility to deduct any taxes and submit them to the government on her behalf.
Read More: How to Calculate Social Security Tax
FICA Tax Amounts
When you look at your paycheck, you’ll see that your employer has deducted FICA taxes. FICA taxes go toward your Medicare and Social Security contributions. You will have a base rate of 7.65 percent of your income deducted and submitted to the government. The good news is, your employer will match that on your behalf.
There is a $142,800 limit on income that is taxed for Social Security, but depending on your income level (more than $200,000) and filing status, you and your employer might pay more in Medicare taxes, so check with a tax professional or your employer to determine your exact rate. Contractors pay their entire FICA tax at a rate of 15.3 percent.
Read More: What Happens If You Can't Make Federal Tax Payments?
Federal Income Tax
Your employer might also deduct federal income taxes from your paycheck. What percentage is taken out for federal taxes is based on your expected income, filing status and dependents. Having several dependents or multiple jobs can reduce the amount of income tax withheld from each paycheck.
You tell your employer this information by filling out a W-4 form when you start to work for the company. If you earn very little and have multiple dependents, you might have no income tax withheld.
Working with your employer, you will try to pay enough taxes to meet your obligations for the year (and not owe the government at the end of the year). If you want to play it safe, you can have more taxes taken out of each paycheck, which could result in an overpayment that is returned to you after you file your taxes in the form of a tax return.
How much federal tax is taken out of your paycheck will also be determined by your tax bracket – the more income you earn, the higher percentage tax bracket you might move into. Tax brackets range from 10 percent to 37 percent of your taxable income. You can find 2021 tax brackets here%3B).
The IRS provides a tax withholding calculator to help you estimate your income taxes. Contractors don’t have to submit taxes to the IRS each time they complete a project or receive a payment, but might need to file quarterly tax payments.
Read More: W-2 Forms: What It Is, Who Gets One & How It Works
Other Items to Consider
If you are claiming dependents, you might qualify for tax credits at tax time, or lower payroll deductions during the year. You address this in Step 3 of the W-4 form. If you have a spouse who earns income, or if you have a second job (or more), you will need to work with your employer, reviewing the Multiple Jobs Worksheet and looking at IRS tax tables that correspond to your estimated earnings for the year.
If you believe you will have income from investments, royalties, patents or other non-job sources, you can have more taxes withheld from your paycheck to make sure you don't end up underpaying your taxes for the year, which could result in fines and penalties. You enter this information in Step 4 of the W-4 Form.
You might also see other deductions from your paycheck, explains H&R Block. These might be for state income taxes, 401(k) contributions, insurance (such as health, dental, vision, disability income, cancer or pet health) or a health savings account, health reimbursement account or flexible spending account.
- IRS.gov: Topic No. 751 Social Security and Medicare Withholding Rates
- IRS.gov: Tax Withholding Estimator
- IRS.gov: Tax Witholding
- H&R Block: Paycheck Taxes – Federal Withholdings, State Withholdings, Social Security and More!
- Irs.gov: IRS provides tax inflation adjustments for tax year 2021
- Policy Genius: Who can I claim as a dependent and why would I want to?
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.