Is your paycheck a lot smaller than expected? That’s because your employer takes out income taxes, payroll taxes, and other deductions before your money even hits your bank account.
Understanding exactly what’s being withheld can help you avoid unpleasant surprises when you file your return. Maryann Reyes, a tax principal with over 25 years of experience, breaks down each deduction, so you know where your wages go.
What Taxes and Withholdings Take the Biggest Bite Out of the Amount of Your Paycheck?
Deductions from most paychecks fall into two categories: mandatory deductions and voluntary withholdings.
Mandatory deductions are required by law, with the largest ones being:
- Federal income tax
- Payroll tax, or FICA: Withheld to fund Social Security and Medicare
- State and local income taxes, where applicable
“Federal income tax depends on your income level, so it’s not necessarily a set percentage,” says Reyes. “But the other two things that taxpayers may not think of are Social Security, which is 6.2 percent, and Medicare, which is almost one and a half percent. And then, depending where you live, there’s state income tax, which is another big chunk.”
Voluntary deductions aren’t taxes, but they can still reduce the amount you take home every month—think health insurance premiums, retirement plan contributions, and health savings accounts (HSAs).
Payroll Taxes: The Biggest Automatic Deductions
Nearly every employee pays payroll taxes. These are mandatory deductions that fund Social Security and Medicare, which the federal government collects under the Federal Insurance Contributions Act (FICA).
Social Security Tax
Social Security tax helps pay for retirement, disability, and survivor benefits through the Social Security program. It’s withheld automatically from your paycheck up to the maximum amount of taxable earnings, which is set by the Social Security Administration (SSA) each year. In 2026, this amount is $184,500.
The Social Security tax rate for 2026 is 12.4%. Your employer pays half (6.2%), and you pay the other half (6.2%). For example, if your total payroll tax is $200, $100 is withheld from your paycheck and your employer also contributes $100.
“There’s a Social Security tax limit [$184,500 in 2026],” says Reyes. “Once you hit that max, then you no longer have to pay Social Security tax on additional wages for the remainder of that year from that employer.”
But what if you’re a high earner who reaches the limit at one job and then starts another? The second employer is still required to withhold Social Security tax from your wages, even if you’ve already reached the annual limit. However, you can generally claim any excess Social Security tax withheld across multiple employers as a credit on your federal income tax return.
Medicare Tax
This tax, which is automatically taken out of your paycheck, goes toward funding Medicare.
The Medicare tax rate for 2026 is 2.9%. It’s split between you and your employer, with each paying 1.45%.
Unlike Social Security tax, there’s no maximum amount of taxable earnings for Medicare tax. However, high-income earners have to pay an extra 0.9% on wages over $200,000 ($250,000 if married filing jointly or $125,000 if married filing separately). This is known as the Additional Medicare Tax.
Social Security and Medicare taxes are normally listed separately on your pay stub, so you can see exactly how much has been withheld.
Things are different for the self-employed when it comes to income and FICA taxes.
“As a self-employed taxpayer, you will need to pay quarterly tax estimates or get a financial advisor who can help you with an estimate,” adds Reyes. “And you have to keep an eye on what your income is because you don’t want to overpay—or underpay, which could result in penalties.”
Federal Income Tax Withholding
Federal income tax is a little different than payroll taxes because it uses progressive tax brackets. This means different portions of your taxable income are taxed at different rates.
Here’s how it works: Your employer estimates how much federal income tax to withhold throughout the year using IRS withholding tables and the information you provide on Form W-4. The amount withheld from each paycheck depends on factors such as your earnings, filing status, and the information you provide on your Form W-4.
If too much tax is withheld during the year, you may receive a refund after you file your tax return. If too little is withheld, you could owe additional tax at tax time.
Reyes explains that providing the right information on a W-4 doesn’t always mean withholding will match your tax liability:
“You just assume that if you’re married and you claim married and don’t claim any dependents, that it’s just going to be enough because common sense would dictate that it would be enough. But your total liability depends on what else you report on your tax return.”
State and Local Income Taxes
Whether state income taxes come out of your paycheck depends on where you live or work. Most states have some form of income tax, but some states, like Florida, Nevada, and Texas, don’t impose anything at all.
City and municipal governments may also charge income taxes and, if they do, you’ll see these deductions on your pay stubs.
Other Common Paycheck Deductions
Taxes aren’t the only things taken from your paycheck. Your employer may also deduct money for benefits, so you can spread the cost of them throughout the year.
Health insurance premiums
If you enroll in your employer’s medical, dental, or vision insurance plan, your share of the premiums is typically withheld from each paycheck.
Retirement contributions
You may be able to save for retirement through automatic payroll deductions—for example, by contributing a percentage of your pay to a 401(k).
“Basically, the larger the percentage, the more they’re taking out of your pay, and the less you come home with,” says Reyes. “So, you want to find that happy medium.”
Union dues or other voluntary deductions
Membership dues may be deducted from your paycheck if you belong to a union.
Other voluntary deductions include life insurance and charitable donations.
What Affects How Much Is Withheld?
Two people receiving the same salary may have different amounts of federal income tax withheld from their paychecks. This can happen for several reasons, including the following:
Filing status
Whether you file taxes as single, married filing jointly, or another status can determine the tax rates and deductions used to calculate your withholding.
Number of dependents
Reporting qualifying children and other dependents on your W-4 may reduce the amount of federal income tax your employer withholds.
You can claim qualifying children under age 17, older children, and other dependents, such as parents you support, on your W-4. Depending on your circumstances, claiming dependents may reduce the amount of federal income tax withheld from your paycheck.
Income level
Because the federal income tax system uses progressive tax brackets, you may have more withheld as your income increases.
W-4 settings
Your W-4 tells your employer how much federal income tax they should take out, and you can update it when your tax situation changes. For example, getting married may change your filing status and the amount withheld from your paycheck.
Reyes says you can also ask your employer to withhold extra from each paycheck if you think you’ll owe more at tax time.
“Let’s say you get paid twice a month. Have them withhold an extra $200, $300 per paycheck, so you don’t have a big bill at the end.”
Additional earnings like bonuses or overtime
Bonuses, overtime, and other earnings can lead to higher withholding because they increase your taxable income.
How to Reduce Surprises at Tax Time
Look at your withholding throughout the year so you can avoid a shock when you file your return:
Review your W-4
Update this form after a major life change such as getting married, having children, or starting a second job. These situations can affect how much tax your employer withholds.
Check your pay stub
Understand every deduction on your pay stub and make sure all amounts look accurate.
“You want to take a look at your pay stub after you complete a W-4, just to make sure it seems right,” says Reyes.
Use a tax withholding calculator
Check whether your employer is withholding enough with this calculator from the IRS.
