Almost everyone who works for a paycheck has taxes deducted each payday. There is no single percentage of taxes taken out of your paycheck. That is because there are several taxes, each calculated differently. Plus, federal and many state income tax rates vary depending on how much you earn, your filing status and the number of withholding allowances you claim.
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Social Security and Medicare
Social Security tax and Medicare tax are two federal taxes deducted from your paycheck. The Social Security tax was 6.2 percent of your total pay until you reach an annual income threshold. However, in 2012 and 2011 the rate was reduced to 4.2 percent as part of efforts to stimulate the economy. The income threshold for 2012 was $110,100, but it is adjusted yearly. The percentage rate for the Medicare tax is 1.45 percent, although Congress can change it. Medicare tax is levied on all of your earnings, with no upper income threshold or limit.
The federal income tax you pay depends partly on how much of your paycheck is considered taxable income. Taxable income is the amount left over after withholding allowances and other tax-exempt amounts are subtracted from your total pay. For example, in 2012 one withholding allowance was $3,800, or $73.08 per week. If you claimed two allowances and you’re paid weekly,
you would subtract $146.15 from your total weekly pay to find your taxable income for figuring federal income tax. You should also deduct any other tax-exempt items such as contributions to an employer-provided retirement plan.
Federal Income Tax
The percentage of federal income tax deducted from your paycheck rises as your taxable income increases. As of 2012, the first $41 per week was not taxed. Federal income tax was 10 percent of your weekly taxable income from $41 to $209. From $209 to $721 per week, the percentage was 15 percent. The percentage tax rises in each successive tax bracket until it reaches a maximum. In 2012, the maximum tax percentage was 35 percent for all taxable income in excess of $7,510 per week.
State and Local
Most states and some local governments also levy income taxes. Each state or local government has its own formula for figuring its income tax. To find out how these taxes on your paycheck are calculated, contact your state and/or local government department of revenue or taxation (see Resources).
If you’d like to calculate the overall percentage of tax deducted from your paycheck, first add up the dollar amounts of each tax withheld. Divide the total by your total pay (this may be called gross pay). Multiply the result by 100 to convert to a percentage.