Understanding Paystub Tax Deductions
A comprehensive guide explaining federal withholding, state taxes, Social Security, and Medicare deductions on employee and contractor paystubs.
Gross Pay vs. Net Pay
The core structure of any check stub is built around three core metrics: gross pay, deductions, and net pay. Gross pay represents the total amount earned before any deductions, while net pay is the final take-home salary after all taxes, insurances, and withholdings have been subtracted.
Standard Tax Deductions Explained
Tax withholdings represent the largest share of deductions on a standard paystub. Under IRS and state laws, employers must withhold the following taxes:
1. Federal Income Tax Withholding (FIT)
FIT is withheld based on the details you provided on your W-4 form (marital status, dependents, tax brackets). This is progressive tax withheld to satisfy your annual federal tax obligations.
2. FICA Taxes (Federal Insurance Contributions Act)
FICA is a mandatory federal payroll tax that funds the national Social Security and Medicare programs. FIT rates depend on brackets, but FICA rates are flat:
- Social Security (OASDI): 6.2% of your gross pay (up to the annual wage cap limit).
- Medicare: 1.45% of your gross pay. (An additional 0.9% applies to high earners earning over $200,000).
3. State Income Tax (SIT)
Withheld to fund state programs and infrastructure. Rates vary depending on where you reside. Nine US states (including Florida, Texas, and Washington) do not collect state income tax, resulting in a $0 deduction in the SIT field.
4. Local or Municipal Taxes
Certain cities or counties (such as New York City, Philadelphia, or San Francisco) levy an additional city tax or county wage tax, which must be itemized on the stub.
Non-Tax Paystub Deductions
Beyond taxes, paystubs often list voluntary deductions, which can be pre-tax or post-tax:
- Pre-tax deductions: Contributions for employer-sponsored health insurance premiums, HSA/FSA plans, or traditional 401(k) retirement accounts. These deductions lower your overall taxable income.
- Post-tax deductions: Roth 401(k) contributions, union dues, or court-ordered garnishments (such as child support). These deductions are subtracted after taxes are calculated.
Standard Tax Deductions Formula
Gross Pay - FIT - Social Security (6.2%) - Medicare (1.45%) - SIT - Pre-tax benefits = Net Take-Home Pay
Frequently Asked Questions
Are self-employed contractors subject to FICA withholdings?
No. When a client pays an independent contractor, they do not withhold FIT or FICA taxes. The contractor receives their gross earnings and must report and pay self-employment tax (15.3%, which represents both employee and employer portions of FICA) when filing Schedule C.
What is the OASDI tax on my paystub?
OASDI stands for Old-Age, Survivors, and Disability Insurance. It is the official IRS acronym for the **Social Security tax** (6.2% flat withholding).
Keeping track of tax calculations is key to financial success. Utilize our free paystub creator to automatically calculate FICA, FIT, and SIT deductions, and prepare your contractor documents with our secure W-9 generator.