Identification

• The types of taxes that are withheld from employees’ paychecks vary by employee. All employees are usually required to pay federal taxes, which include federal income tax, Social Security tax and Medicare tax; but if an employee is exempt, he’s not subject to tax withholding. Most states require employees to pay state income tax, but the states of Florida, Alaska, Nevada, New Hampshire, Texas, South Dakota, Tennessee, Washington and Wyoming do not. Some local governments require local income tax withholding.
  
  

Federal Methods

• You may view federal income tax withholding calculations by consulting the relevant tax table in IRS Circular E. Specifically, your tax withholding is based on the filing status and allowances that you put on your W-4 form, and the Circular E tax table relevant to your
  W-4 data, wages and pay period. You may view the rates for Social Security and Medicare taxes on the Social Security Administration’s website or in Circular E. In 2011, your employer withholds Social Security tax at 4.2 percent of your taxable wages for each pay period -- up to $106,800 in taxable wages for the year -- plus Medicare tax at 1.45 percent of all of your taxable wages for the pay period and year.
  
  

State Options

• You may obtain the procedures for state income tax withholding from your state revenue agency. The agency may also have the rules for calculating local income tax, such as city income tax or school district tax, if applicable. If not, consult your local tax assessor. For example, you work in North Carolina, your employer is supposed to use your NC-4 form and Publication NC-30 -- which are similar to the W-4 and to Circular E, respectively -- to calculate state income tax withholding.
  
  

Considerations

• Withholding is based on taxable wages. Before deducting the tax, subtract your applicable nontaxable or pretax deductions from your gross pay to arrive at the taxable wages. Wages withheld for Section 125 health plans and flexible spending accounts, for example, are not subject to federal income tax, Social Security tax or Medicare tax -- and depending on your state, possibly state income tax also. Traditional 401k plans are not subject to federal income tax, and depending on your state, possibly state income tax; however, Social Security and Medicare taxes apply.