Employers are required by law to withhold certain taxes from an employee’s earnings. Your paystub will likely include how much your employer withheld from your pay but it usually does not include how your employer calculated how much to withhold. Knowing federal income, social security and Medicare tax rates, and any state or local income tax you must pay can help you figure out how your employer calculated your withholding.
Federal Income Tax
The Internal Revenue Service requires employers to withhold income tax from the pay most employees receive. How much your employer withholds depends on how much you earn and the information you provide on your W-4. Single people have more income withheld than married people and the number of dependents will also affect how much your employer withholds. You can also ask your employer to withhold more than legally must be withheld. The IRS makes a withholding calculator available on its website. You can use this calculator to determine how much your employer should withhold based on your specific circumstances.
Social Security and Medicare Tax
Employers and employees contribute to Social Security’s Old Age, Survivors and Disability Program and Medicare’s Hospital Insurance Program. Employers and employees separately contribute 6.2 percent of an employee’s earnings for Social Security and 1.450 percent for Medicare. You can figure out your Social Security and Medicare tax obligations by multiplying your pay by 6.2 percent and 1.450 percent respectively. For example, if you earn $2,000 in a pay period, then you can expect to see a $124 Social Security tax deduction and a $29 Medicare tax deduction. These deductions are usually labeled FICA and SECA. During some years, employees may contribute less than employers. For example, in 2011 and 2012, employees contributed 4.2 percent while employers still contributed 6.2 percent.
Additional Medicare Tax
In 2013, the IRS implemented an additional Medicare tax for high-income earners. This 0.9 percent tax affects married couples who earn a combined $250,000 and file jointly, married taxpayers who earn $125,000 and more and file separately and individuals who earn at least $200,000. If you are subject to this additional Medicare tax, your total Medicare tax obligation will be 2.35 percent.
State and Local Income Taxes
If you live in most states, your employer must also withhold a personal income tax from your pay. States that do not impose such a tax include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. While New Hampshire and Tennessee also do not impose a personal tax, both states tax dividend and interest income. Your employer will also use the information you provide on your W-4 to determine your state and local tax liabilities. Some cities, counties and other local government units also require employers to withhold an additional tax. Your employer can tell you if your pay is subject to such withholding.
- IRS: Federal Income Tax Withholding
- IRS: Tax Withholding
- IRS: Withholding Calculator
- IRS: Social Security Tax/Medicare Tax and Self-Employment
- Social Security Administration: Social Security and Medicare Tax Rates
- Business Owners Toolkit: Do You Have State and Local Payroll Tax Obligations for Your Employees?
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