Federal Income Tax

• The Internal Revenue Service enforces federal income tax withholding laws. It requires employers to give new employees a W-4 form, used to figure the amount of federal income tax to withhold from your paychecks. You indicate your withholding conditions, such as your filing status and allowances. Your employer uses this data and the IRS Circular E's withholding tax tables to figure the withholding amount. The IRS allows you to claim allowances, such as yourself or for each of your dependents, which lowers your taxable wages. In general, the more allowances you claim the less your federal income tax withholding. To determine your exact withholding, use the Circular E withholding tax table specific to your filing status, allowances, income and payroll period.
  
  

FICA Taxes

• Medicare and Social Security taxes are sometimes called FICA taxes. The Federal Insurance Contributions Act mandates the collection of these two taxes. Both you and your employer are required to pay 6.2 percent of gross income, up to the yearly wage maximum of $106,800, for Social Security tax; and 1.45 percent of all gross income for Medicare tax. Your employer pays all federal income tax and FICA tax withholdings directly to the IRS.
  
  

Additional Taxes

• All states require state income tax withholding, except the following: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming. Your state income tax amount depends on your state revenue agency's policies. Some states require employers to use a system similar to federal income tax withholding, except that the employer uses the employee's state withholding tax form instead of her W-4 form and the state withholding tax tables. A few states require employers to use the employee's W-4 form for state withholding purposes. Others require employers to use a flat percentage of the employee's gross taxable wages. Cities, such as New York City and Yonkers require city income tax withholding. Furthermore, in rare cases, local income tax withholding applies. If city and local income tax withholding are required, the state revenue agency usually includes the withholding instructions on its website.
  
  

Considerations

• If you claim exempt on your W-4 or state withholding tax form, no federal or state income tax should be withheld from your paycheck. If your state requires your employer to give you a pay stub, it may mandate that your employer include wages earned and deductions paid for the payroll period. The state may or may not require your employer to list each deduction separately on your pay stub.