How Does The IRS Determine What Tax Bracket You're In When They Take Taxes Out Of Your Paycheck?

In the USA, federal income taxes are withheld each payroll, based on the amount paid, the frequency of pay, and the employee’s marital status and any other information the employee provided on their most recent W-4. There are basically 8 tax brackets — 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If you earn enough to move to another tax bracket, then only your income above that threshold is taxed at the higher percentage, not all of your income. This is a common misperception. The tax brackets begin at different dollar amounts, based on how much an employee earns, how often they are paid, whether they are single or married, and other things they put on their most recent W-4. In a nutshell, your employer takes your taxable gross income for the payroll, adds an amount based on the employee’s W-4, divides by the number of pay periods in the year, and subtracts a certain amount based on the employee’s W-4. The employer then figures out the tax withholding for each tax bracket that applies, and then an additional withholding amount that the employee requested, if any, on their W-4. For example, let’s say an employee who earns $1,000 per week. The employee would have 0% of federal income tax withheld on their first $483, then 10% on the next $382, and 12% on the last $135, for a total of $54.40 federal income tax withheld on that payroll. IRS Publication 15 (link) has general information about how federal income tax withholding is calculated, and IRS Publication 15-T (link) has the percentages and tax tables. In addition to federal income tax, almost all employees also have social security tax and Medicare tax withheld from their pay. There may also be state income tax withheld and local income tax withhold in some cases.

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