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How Federal Payroll Taxes Are Calculated On Paycheck

Updated on October 15, 2010

Looking over your paycheck? On the check stub the gross pay looks like a nice number. Equal to the amounts earned for your hard work.. But look over there, the Net Pay is smaller. Wait, that's also the amount listed on the pay line of your check too.. Did federal payroll tax really take that much? Have you ever wondered how your federal payroll tax is calculated? There are 3 payroll taxes that the employee is responsible for. Your Federal Withholding Amount or federal payroll tax is all you, you determined how much to take out when you completed your W-4. Medicare and Social Security are calculated based on a percentage.

federal payroll tax
federal payroll tax

Federal Withholding for federal payroll tax

Remember back when you started your employer asked you to fill out some boring paperwork. One of those forms you filled out was your W-4. This is a legal IRS document that determines how much to withhold for your federal withholding based on what you choose. Your federal withholding is the amount withheld to cover your federal payroll tax on your your income taxes at the end of the year.

Your withholding status is determined by if you are married or single and how many dependants you are claiming. While it is not unlawful to claim a lower amount of dependants thus making your withholding amount higher, you should not claim more than allowed. At the end of the year your federal payroll tax will be calculated to determine the actual amount due, you may have a refund, you may owe more.

On the W-4 form there is also an option for extra withholding amount. If you don't mind Uncle Sam earning interest on your money instead of you while waiting for tax time to pay federal payroll tax, you can choose to have more money withheld from your paycheck. This is helpful for those that may have had to pay taxesfederal payroll tax the year before and want to protect themselves with a little cushion for this year.

Using your withholding status, your employers payroll department calculates your withholdingfor your federal payroll tax using either a percentage method or wage bracket method. Both are acceptable and outlined in the Circular E.

federal payroll tax
federal payroll tax


Did you know that it was President Harry Truman who started the Medicare idea? President Lyndon Johnson signed the bill, but it was Pres. Truman who first went to congress trying to get a national universal medical plan 20 years prior in 1945. The universal coverage plan was shot down, but medical for those who will be receiving social security was put into law in 1965. Who was Medicare's first receiptiant? President Harry Truman.

You now see this piece of history in your deductions coloum of your paycheck. 1.45% of your gross earnings is deducted to cover medical costs for medicare. There is no limit cap to Medicare

Social Security

In 1935 Franklin Roosevelt signed the Social Security act putting in force what at the time was only considered a retirement program. Social Security today is no longer meant to be your sole retirement program but a cushion to help when you are no longer able to work.

Social Security also covers those with disabilities unable to work. This program takes on a lot of flack because many believe that the younger generations working today may not have anything to collect from their Social Security when their time comes due to misuse and poor management of the system.

Social Security deducts 6.2% from your all of your paycheck earnings. There is a limit cap. For 2008 Once you reach $102,000 you no longer need to contribute to SS for the rest of the calendar year. So for the majority of you, myself included.. Commence laughing now.

State Tax

State taxes vary from state to state and to give a run down on each would be fill a book. If you would like to know more I suggest visiting your states Department of Revenue website or to start, do a search for "your states name" unemployment insurance.


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    • profile image


      7 years ago

      I'm noticing that under the SS it shows that um claiming or have

      2. Although I claim single with 0 dependents

    • profile image


      7 years ago

      Hi when I started working i filled out the w-4 if I remember right I wrote 5 well according to my pay stub. so I was wondering if I can claim less and not owe or do u think that I will end up owing i am thinking of claiming my 3 or 4 dependents can u please help thank you...

    • profile image


      8 years ago

      Ditto what it the percent with held for married but claiming single. This was not addressed. This is what I want to know. As to dumb dumb thinking we go to the cinema ha I have not been to a movie nor rented a dvd in over 5 years don't have that kind of money we have antenna for t.v and digital box to help pull in the few channels we can get often spotty. Can't afford satellite dish or cable which is not in our area anyway so don't watch t.v much or movies. We got a few old VHS we re watch if really bored but life is full of more interesting things to do like reading, talking, spending time with family, watching the wildlife with a camera. Our annual income rude person is $17,439 a year. Not much and we have no medical can't afford it. So we try and stay healthy and pray.

    • profile image


      8 years ago

      I still want to know what the exact % is for Fed Income, FICA, and Medicare. I don't think my employer is taking enough out and I REALLY would rather get the big payout at the end of January. My husbands job is so slow during the winter, and it helps.

    • profile image


      8 years ago

      Well Mr. Australian, even if you did not mention your nationality it was pretty easy to figure out (racist).

      Thanks for the great article.

    • profile image


      8 years ago

      It is not that Americans are dumb about tax rates, it is that they are exhausted. You get to a point where you keep getting hammered until your enthusiasm is no longer there and the only way to keep going is by going to the cinema.

    • profile image

      Roger Chestnut 

      9 years ago

      Wow nice comment about Americans. Sheesh. Americans, like most people around the world, are quite dialed in to what's happening with our personal finances, which unfortunately means reviewing our bi-weekly paychecks to see just how much tax is being taken out. Learning how federal tax is calculated can only help with our understanding. Nice hub sunstreeks.

    • jiberish profile image


      9 years ago from florida

      Thank you, I'm sure a lot of people we not aware of this info.

    • MikeNV profile image


      9 years ago from Henderson, NV

      And if you are self employed you get to pay double.

    • profile image


      9 years ago

      Jason yes you can claim 4 dependents and you will receive more in your payroll check and will lessen or diminish any return you might get at the end of the year.

      Cre - Medicare and SS taxes are separate from Federal Withholding - it's the Federal and State withholding that will be the basis for taxes due or not due

    • profile image

      jason stepp 

      9 years ago

      i am tring to determand how much taxes to be withheld from my payroll check i am the only one working in my household and have 3 dependes i clame 1 during the year and was woundering if i could clame all 4 to get more of my check i have more taken out in fed. & state please help!

    • profile image


      9 years ago

      Hi. I'm trying to make sure I don't owe taxes next year. I just looked at my bracket and my pay stub. Do I include my Fica contribution as part of my Federal taxes?

      Thanks for any help you can offer!

    • sunstreeks profile imageAUTHOR


      10 years ago from Western Washington

      Your assumption is rude and incorrect but whatever, thanks for reading.. This was written by an American by the way. Average, young, female american =P

    • profile image

      Emma Harrison 

      10 years ago

      Amazing the only commenter before me was an Australian, what a bunch of pillocks Americans must be. I am sure the vast majority of Americans don't know much about this topic all they ever seem to know is what is playing in the cinema... Very informative and interesting insight into American taxation.

    • MrMarmalade profile image


      11 years ago from Sydney

      That was good background material. No good to me I live in Australia. Thank you for a great effort


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