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How to Calculate Deductions from Employee Paychecks

Federal Income Tax, FICA Tax, and More


Employee paychecks start out as gross pay, but then you must deduct amounts for federal income tax withholding, FICA (Social Security/Medicare) tax, state and local income tax, and other deductions.

1. How to Calculate Federal Income Tax (FIT) Withholding Amount

Calculate an employee's federal income tax withholding using the information from the employee's Form W-4 - Employee's Withholding Allowance Certificate and the withholding tax deduction tables.

2. How to Calculate Social Security & Medicare Deductions

You must deduct FICA taxes (Social Security and Medicare) from employee paychecks.  The calculation for these deductions is pretty straightforward, but you must be sure not to deduct too much Social Security tax from high-income employees, since Social Security is capped each year.

3. How to Determine State Income Tax Deductions

Most states impose income taxes on employee salaries and wages.  You will have to do some research to determine the amounts of these deductions and how to send them to the appropriate state/local taxing authority.  Your responsibilities as an employer for deducting, paying, and reporting these taxes are discussed in this article.


Back to All About Payroll Taxes

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