What is withholding tax: the money taken off the paycheck

What is withholding tax on a paycheck

Withholding means money you take out of pay before the worker receives it. You send that money to a tax agency. You do not keep it as pay for the shop. The IRS is the Internal Revenue Service, the federal tax agency. Publication 15 (Circular E) is the IRS Employer’s Tax Guide. It says you generally must withhold federal income tax from employees’ wages. It also says you withhold part of Social Security and Medicare taxes from those wages, and you pay a matching amount yourself.

The part you take from the worker is withholding. The matching amount you add is not withholding. Federal unemployment tax is not withholding either. Publication 15 says that tax is not withheld and is not paid by the employee. Employer payroll taxes percentage is that added share. This page is the share that comes off the check.

Net pay is what is left after withholding. Gross pay is wages before those taxes. How to pay employees is the handoff of that net amount. This page is the name of the money that left the check.

Federal income tax, Social Security, and Medicare

Three federal amounts can come off a wage check. They are not one combined rate.

Federal income tax has no single percent for every worker. Publication 15 says to withhold it from each wage payment according to the employee’s Form W-4 and the tables in Publication 15-T. Publication 15-T is the federal income-tax withholding methods book. Form W-4 is the Employee’s Withholding Certificate. The dollar amount follows that form and the pay period. This page does not print a table, and it does not pick a filing status for a worker.

Social Security tax is 6.2 percent of the employee’s wages for 2026, up to a wage base of $184,500. You withhold that 6.2 percent. You also owe a matching 6.2 percent. Stop the employee 6.2 percent when that employee’s wages for the year reach $184,500. The match stops at the same point. The match is still not withholding.

Medicare tax is 1.45 percent of wages, with no wage cap. You withhold 1.45 percent. You match 1.45 percent. The match is not withholding.

Additional Medicare Tax is an extra 0.9 percent. Publication 15 says you must withhold it from wages you pay an employee above $200,000 in the calendar year. You start in the pay period when wages pass $200,000, and you keep withholding it through the rest of that year. There is no employer share of that 0.9 percent.

Backup withholding is a different rule. Publication 15 says you generally withhold 24 percent of certain payments, such as some nonemployee payments, when the payee does not give you a correct taxpayer identification number. That withholding is reported on Form 945, the annual return of withheld federal income tax. It is not the wage withholding you report on Form 941. Form 941 is the quarterly federal payroll tax return.

The Form W-4 sets federal income-tax withholding

Topic 753 is the IRS page on Form W-4. It says that when you hire an employee, you must have the employee complete Form W-4. The form tells you the filing status, any adjustment for more than one job, credits, other income, deductions, and any extra amount to withhold. You use those entries to figure federal income tax. You do not use them to figure Social Security or Medicare. Those two use the percents above.

If the employee does not give you a properly completed Form W-4, Topic 753 says to withhold federal income tax as if the employee is single, or married filing separately, with no other entries on step 2, 3, or 4. Publication 15 states the same rule for a missing 2026 Form W-4.

An employee can claim exemption from federal income-tax withholding on Form W-4 only with no tax liability for the prior year and none expected for the current year. Topic 753 says that claim lasts only for the calendar year it was given to you. To stay exempt the next year, the employee must give you a new Form W-4 by February 15. If that date is a Saturday, Sunday, or legal holiday, the next business day is on time. If the new form does not arrive by then, withhold as if the employee is single, or married filing separately, with steps 2, 3, and 4 blank. Social Security and Medicare still come out. An income-tax exemption does not stop them.

Keep each Form W-4 for at least four years. Topic 753 and Publication 15 both say that. The form is the record that you withheld federal income tax from the employee’s entries. The IRS can also send a lock-in letter that sets the withholding you must use. Follow that letter. Topic 753 describes it.

A state certificate is a second form. Form W-4 does not set state income tax. The state pages below name the state form where there is one.

States that withhold income tax, and states that do not

State withholding is income tax a state tells you to take from wages. Nine states below show the split. They are not a full list. Read the state page before you use a rule from it in another state.

Texas does not take state income tax from paychecks. The Texas Constitution says the legislature may not impose a tax on the net incomes of individuals. There is no state withholding certificate and no state paycheck-withholding account. You still withhold federal income tax, Social Security, and Medicare.

Florida does not take state income tax from paychecks. The Florida Constitution says the state may not levy a tax on the income of natural persons who are residents or citizens, except where a similar federal or state tax allows a credit or deduction. There is no Florida withholding certificate. Federal withholding still applies.

Nevada does not tax salaries or wages. The Department of Taxation says residents do not pay a state tax on income from salaries, wages, or similar pay. There is no Nevada withholding account. The Modified Business Tax is an employer tax on the shop. It is not money taken from the paycheck.

New Hampshire does not tax W-2 wages. The Department of Revenue Administration says the state has no income tax on an individual’s reported W-2 wages. Business Enterprise Tax and Business Profits Tax are business taxes filed on Granite Tax Connect. They are not paycheck withholding. The old interest-and-dividends tax is repealed for periods that begin after December 31, 2024.

California does take state income tax from paychecks. EDD is the Employment Development Department, the state payroll-tax office. Its rates page says a new hire completes federal Form W-4 and state Form DE 4. Form DE 4 is the Employee’s Withholding Allowance Certificate. It is for California personal income tax. If the worker does not give you a completed Form DE 4, that page says to withhold state income tax as if the worker were single and claiming zero withholding allowances. California also withholds State Disability Insurance, often called SDI. For 2026 the SDI withholding rate is 1.3 percent, and all wages are subject to it. Unemployment insurance on the EDD notice is the employer’s rate. It is not that disability withholding. Paying wages can also start the 15-day registration clock on that page. A federal deposit does not open the EDD account.

New York uses Form IT-2104, the Employee’s Withholding Allowance Certificate, for state withholding. One employer registration covers unemployment insurance, withholding, and wage reporting. Form W-4 does not replace Form IT-2104. Do not treat that shared registration as the rule in another state.

Pennsylvania withholds a flat 3.07 percent of compensation for the state. The Department of Revenue’s employer-withholding page states that rate. Local earned income tax is a second withholding. You withhold the higher of the resident rate and the work-location nonresident rate, and you withhold a local services tax when it applies. You send the local amounts to the local collector. The state myPATH account does not cover those local taxes. myPATH is Pennsylvania’s online tax system.

Connecticut takes state income tax from paychecks. Workers complete Form CT-W4, the Employee’s Withholding Certificate. A federal Form W-4 is not that form. Withholding is registered with the Department of Revenue Services on myconneCT. The unemployment account sits with the Department of Labor. Those numbers are not interchangeable. Covered employers also withhold 0.5 percent for CT Paid Leave. That worker share goes to the Paid Leave Authority. It is not the income-tax withholding account, and there is no employer match on the Authority’s page.

Oregon takes state income tax from paychecks. Workers complete Form OR-W-4, the Oregon Withholding Statement and Exemption Certificate. The 2026 Oregon withholding tables say that using federal Form W-4 allowances may not withhold the right Oregon amount. Paid Leave Oregon is a separate amount on the same wages. For 2026 the contribution is 1 percent of subject wages up to $184,500, and employees pay 60 percent of that rate. The shop still withholds that employee share. Do not use Oregon’s form as Connecticut’s form.

The employer share is not withholding

Withholding tax is the worker’s money, held by you for the agency. The tax you owe on top of wages is a different bill. Your Social Security match, your Medicare match, federal unemployment tax, and state unemployment tax stay off the paycheck. Taking state unemployment tax out of wages, in a state that bars that deduction, is not withholding. It is a deduction the state does not allow. The state pages say which states bar it.

How to run payroll puts withholding in payday order, after gross pay and before net pay. The percentage guide is the employer share that never enters that subtraction.

Where the withheld money goes

You hold the withheld federal income tax, Social Security, and Medicare, together with your Social Security and Medicare match, until the deposit. A deposit is the payment of that money to the IRS. Publication 15 says you pay it by electronic funds transfer. EFTPS is the Electronic Federal Tax Payment System, a free payment system from the U.S. Department of the Treasury. The EFTPS page says a new enrollment can take up to five business days.

The payday is not always the deposit day. Publication 15 uses a monthly schedule or a semiweekly schedule, based on a lookback of earlier Form 941 taxes. How to run payroll walks those due dates. State withholding uses the state’s own calendar. It does not ride on Form 941.

You stay responsible for the deposit and the return if a payroll service misses them. Publication 15 says that. A login is not a state withholding account. Hiring your first employee is the list of accounts to open before the first deposit. The methodology page grades how much of the state work the software takes off your desk. Gusto is one plain link. Patriot is the other service on this site.

Related guide: How bonuses are taxed covers the 22 percent flat rate and the aggregate method for a bonus check.