Understanding Tax Withholdings on Your Paycheck





Taxes can be frustrating when looking at your paycheck.  It is also the first place to turn your eyes to after checking your total take home amount from your paycheck.  Tax withholding can comprise of more than 30% of your paycheck depending on which state you live in and how much you are making.  Although it can be frustrating when thinking about taxes,  you should be aware of all the different type of payroll taxes you are paying.  The tax section of your paycheck includes Fed Withholding, Fed MED EE, Fed OASDI/EE, and State Withholding.

UPDATE: 2016 OASDI Tax and Social Security Withholding Rate

Fed Withholding is the biggest component of the total tax you are paying out of your paycheck.  This is the federal tax mandated by the government and it can be controlled by changing your claim using the W-4 or the Federal Withholding.  The more withholding you claim, the less money from your paycheck will be withheld.  In the end, it really doesn’t matter what withholding you claim because it will even out when you file your tax return in April.  However, you do not want to claim too much and definitely do your calculation to ensure you are accurately claiming the correct amount.  As a general rule, you should not claim more than 10.  The Fed Withholding can comprise up to 10-20 percent for average income.




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Fed Med EE

The Fed Med/EE tax is a tax covering your payroll deduction medicare. This tax is collected from most of the full time, part-time, and temporary employees and comprise of 2.9 percent of your total wages.  However, you should notice that only 1.45 percent is deducted from your paycheck.  That’s because your employer covers the other 1.45 percent of your Fed Med EE.  Unlike the Federal Withholding, the Medicare tax rate is the same no matter how little or how much money you earn during the year.

The Government collects the Fed Med EE tax or the Medicare tax to provide funding to the health insurance for people age 65 and older.  The Medicare covers all kinds of medical care such as doctor visits and treatment, as well as prescription medications.

Fed OASDI/EE

OASDI/EE is the employee paid portion of Social Security tax.  OASDI / EE stands for Old-Age, Survivors, and Disability Insurance/Employee.  In 2013, the U.S. Government required everyone to pay 12.4 percent of your total wages.  Similar to the Fed Med EE, an employee portion covers 6.2 percent while the employer covers the remaining 6.2 percent.  For more detailed information, read Social Security (FED OASDI) Tax Impacting Your Paycheck

State Withholding

Almost every State requires employees to pay a State Tax.  Similar to the Federal Tax, W-4 is used to calculate the withholding amount.  If you are fortunate to live on Alaska, Florida, Nevada, South Dakota, Washington, Texas or Wyoming, then you do not need worry about paying any state income tax.  All other states require state income tax and the percentage various by each state.  In addition, many states have a progressive withholding tax where the tax rates rise as income increases.  Important piece of information to know is that State taxes are separate from federal taxes.



Comments
  • Confused June 10, 2016 at 1:38 pm

    I am in Florida and I have been having Fed Withholding taking a nice amount every check. Why is that if Florida is on your list of states that don’t pay state tax?

    • UltimateSmartMoney June 13, 2016 at 7:46 pm

      If you live in Florida, you don’t pay state tax. Everyone pays Federal tax and there is nothing you can do about it. Consider tax strategies like maxing out on your 401K.

    • Alex July 7, 2016 at 1:49 pm

      Because that is the federal withholding, not the state withholding.

    • vera December 13, 2016 at 3:56 pm

      They said they dont take stste taxes not federal taxes

  • deborah edwards seo} October 14, 2016 at 12:14 pm

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  • Bee January 18, 2017 at 10:49 am

    Hi Confused,
    Without seeing your actual earning statement it is hard to answer- however, if I had to make an educated guess it would be 1 of 2 things: either you are referring to your federal withholdings (basically your federal taxes, which are separate and different than state withholdings/taxes) or you are having money withheld, but are not paying taxes on it– if the second is the case, you will receive that money back (minus anything you owed) as a tax refund after you file taxes on April 15th. If I were a betting woman, I would say it is the first one as you refer to “fed withholding”. Hope that helps.

  • Christina March 31, 2017 at 5:17 am

    Hello. I noticed that last year –2016– I have zero withholdings for Fed OASDI/EE and now–2017–every check shows I am being deducted 329.82. This seems like a huge jump. Why so? Is there anything I can do to minimize this increase? Thank you.

    • UltimateSmartMoney April 9, 2017 at 7:14 pm

      Hi there. Did your salary increase or did you change your claims in W4? Thanks

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