Most employers are required by law to calculate and withhold federal taxes from your wages. Three federal taxes are deducted from paychecks: income tax, Social Security tax and Medicare tax. Because each tax has a different rate, there are multiple federal withholding percentages. In fact, federal income tax has several percentage rates, one or more of which may be used to calculate the amount of income tax that must be withheld.
Taxable and Gross Income
Federal income tax is deducted from taxable wages. To determine taxable wages, employers deduct the value of the withholding allowances an employee claims on her W-4 form from gross wages. The withholding allowance amount depends on the length of the pay period. For example, in 2015 the allowance amount was $76.90 for weekly pay periods or $153.80 for biweekly periods. Suppose an employee earns gross wages of $800 in one week and claims two withholding allowances. The taxable wages for federal income tax are $800 less $153.80, or $646.20. Additional amounts may be subtracted for non-taxable items like contributions to a retirement or health savings plan.
Federal Income Tax Brackets
Federal income tax is a progressive tax. This means the more a person earns, the higher the tax percentage becomes -- and the more money employers withhold from your paycheck. The dollar amount subject to each tax bracket depends on your filing status as single or married. For example, employers in 2015 deducted zero tax on the first $44 of taxable wages and 10 percent on the amount from $44 to $222 for a single employee paid weekly. For a married worker paid weekly, the 10 percent tax bracket ranged from $162 to $520. Income tax withholding percentages increase as the taxable wages rise from 10 percent to 15 percent, then to 25 percent, 28 percent, 33 percent, 35 percent and finally to 39.6 percent.
Social Security Tax Rate
The withholding rate for Social Security tax usually is 6.2 percent, although Congress can change it. Social Security tax is calculated using gross wages with no deductions. There is an annual income ceiling for Social Security tax, adjusted annually. For example, the cap in 2015 was $118,500. Employers stop deducting Social Security tax once an employee reaches the annual income cap amount.
Medicare Tax Rates
Medicare tax is levied on all gross income with no deductions and no income cap. The withholding rate is 1.45 percent. There is also an Additional Medicare Tax that must be withheld on wages in excess of $200,000 per year at a rate of 0.9 percent.
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