Why Are My Taxes So High on My Paycheck?

It’s your first payday at a new job. You make $15 an hour, and you worked 80 hours over the past two weeks. Your paycheck hits your account, but you don’t see $1,200 — you see something closer to $950.

That’s because your employer deducted the taxes you owe the federal (and state) government. If you were a contractor or freelancer, you would have to calculate this amount and pay it yourself, but your company’s payroll administrator does it for you as an employee.

Taxes are important. They fund essential public services and spaces like education, transportation, Medicare, Social Security, parks, and much more. They’re not a bad thing; it just sucks when people who make a lot of money don’t have to pay nearly as much as you do in comparison. Instead of making $2,400 every four weeks, you earn about $1,900, so now you have to budget accordingly.

Several factors influence how much of your paycheck goes to taxes, though. Let’s go over where your money goes and whether or not you could see it again.

The federal government taxes people in a tiered structure, known as “brackets.” This means you pay taxes on pieces of your income, not the entire thing.

For instance, if you make anywhere between $0 - $9,950 annually in 2021 (for Tax Day in 2022), you owe 10% of that to the government in taxes. If you earn anywhere between $9,951 and $40,525, you will owe $995, plus 12% of the amount you make over $9,950, the top of the previous bracket. The brackets continue: 22% for $40,525 - $86,375, 24% for $86,436 - $164,925, and so on.

These tiers are if you file taxes as a single individual. Married couples who file together, or individuals who file as the head of a household will pay different paycheck taxes under brackets unique to their filing status. If you want to know how much tax will be deducted from your paycheck, you can use SmartAsset’s tax calculator or check out the 2021 tax brackets from NerdWallet.

From your point of view, your employer deducts a lump sum from your paycheck, but these taxes are divided amongst different programs, organizations, and institutions.

Federal Income Tax: Federal income tax is — you guessed it — what you pay the federal government to pay for things like safety net programs and national defense. You can use the brackets we talked about above to calculate how much federal income tax you might expect to owe.

State Income Tax: Besides the federal government, you pay your state government taxes as well (unless you live in states like Alaska and Florida, which don’t charge state income tax). These taxes go toward expenses like public transportation, education, health care, and “corrections.” Your state tax burden depends on the specific state you live in, with California, Hawaii, and New Jersey being notably high.

FICA: Taxes paid under the Federal Insurance Contribution Act, or FICA, encompasses Social Security and Medicare programs. 6.2% of the first $137,000 of your income goes to the former, and 1.45% of each paycheck contributes to the latter (which your employer matches. Medicare tax applies to all of your income, not just the first $137,000 of the year).

Your employer may deduct other kinds of insurance depending on the state you live in, such as State Disability Insurance Tax or State Family Leave Insurance Tax.

Another question you may have is: do minors get taxes taken out of their paycheck? The answer is yes, they do. The IRS doesn’t care if your child is a teenager working their first job; they will dictate that their employer must deduct federal and state taxes.

Besides tax, your employer may deduct other agreed-upon expenses, such as health insurance premiums they provide, pension contributions, 401(k) contributions, and union dues. If you owe child support, a court can dictate that your employer must deduct those from your paycheck, too.

As you’re undoubtedly aware, you must file taxes once per year and will (hopefully) receive a refund. This is because you might have overpaid the amount of tax you owe through payroll withholding.

Hundreds of credits and deductions exist that could reduce the amount of tax you owe. Examples include child tax credit, student loan interest deduction, mortgage interest deduction, medical expense deduction, home office deduction (especially relevant to remote workers), residential energy credit, and more. You may also be able to take advantage of unique deductions you might not have heard of.

When questioning, “What percent of my paycheck goes to taxes?”, the best course of action is to use a calculator that accounts for your local address because numerous factors influence how much you owe. If you encounter an irregular bill or emergency expense and your paycheck after tax is too low to cover it, you can use apps like Earnin to access your income for hours you already worked (and for no hidden fees), and the app takes the amount out of your next paycheck. Otherwise, it’s essential to know how much money you actually get to take home, so learn what your state’s tax obligations are and which 2021 federal tax bracket you fall under.