The money your employer withholds from each paycheck goes toward federal income taxes, Social Security, Medicare, and often state and local taxes. Beyond taxes, your paycheck may also have deductions for benefits you’ve enrolled in, like health insurance and retirement savings. Here’s a breakdown of where that money actually ends up.
Federal Income Tax
The largest withholding for most workers is federal income tax. Your employer calculates this based on the information you provided on your W-4 form, including your filing status and any adjustments you claimed. The amount varies depending on how much you earn and those W-4 choices, but the money goes straight to the U.S. Treasury to fund the federal government.
In fiscal year 2026, federal spending breaks down roughly like this: Social Security takes the biggest share at 22%, followed by net interest on the national debt at 14%, health programs at 14%, Medicare at 14%, and national defense at 13%. Income security programs like unemployment benefits and food assistance account for about 10%, and veterans’ benefits make up 6%. The remaining portion covers education, transportation, law enforcement, and other government operations. So when federal taxes leave your paycheck, they’re funding everything from military equipment to highway repairs to research grants.
Social Security and Medicare (FICA)
You’ll see a separate line on your pay stub for Social Security and another for Medicare. Together, these are known as FICA taxes, and they’re mandatory regardless of your income level or filing status.
Social Security is withheld at 6.2% of your gross pay, and your employer matches that with another 6.2%. This tax applies to earnings up to $184,500 in 2026. Once you’ve earned above that threshold in a calendar year, Social Security withholding stops until January. The money funds retirement benefits, disability payments, and survivor benefits for families of deceased workers.
Medicare is withheld at 1.45% of your gross pay, again matched by your employer. Unlike Social Security, there is no earnings cap on Medicare tax. If you earn more than $200,000 as a single filer, an additional 0.9% Medicare surtax kicks in on earnings above that threshold (your employer does not match this extra portion). Medicare funds hospital insurance and medical coverage for Americans aged 65 and older, as well as younger people with certain disabilities.
State and Local Taxes
Most states also withhold income tax from your paycheck to fund state-level services. Where your state tax dollars go looks different from federal spending. Public K-12 education is the single largest expense for most states, consuming more than one-fourth of state budgets on average (roughly $316 billion nationally). States use this money primarily as grants to local school districts rather than paying teachers directly.
Higher education, including community colleges and state university systems, accounts for about 14% of state spending. Transportation, mainly road and bridge construction and repair plus public transit, takes around 6%. Corrections, covering prisons, juvenile justice, and parole programs, makes up about 5%. The rest goes toward public employee pensions, mental health services, state police, parks, housing programs, economic development, and environmental projects.
Some cities and counties impose their own income taxes on top of state withholding. A handful of states have no state income tax at all, so you won’t see that line on your pay stub if you work in one of them.
Health Insurance Premiums
If you’re enrolled in your employer’s health plan, you’ll see a deduction for your share of the premium. Employers typically cover a portion of the cost, and the remainder comes out of your paycheck, often on a pre-tax basis. That pre-tax arrangement means the money is deducted before income taxes are calculated, which lowers your taxable income.
Depending on what your employer offers, you may also see separate deductions for dental insurance, vision insurance, or both. These are usually optional, and you choose whether to enroll during your benefits enrollment period.
Retirement Contributions
If you contribute to a 401(k), 403(b), or similar employer-sponsored retirement plan, that money is deducted from your paycheck before you receive it. Traditional 401(k) contributions are pre-tax, meaning they reduce your taxable income now but you’ll pay income tax when you withdraw the money in retirement. Roth 401(k) contributions work the opposite way: they come out after tax, but qualified withdrawals in retirement are tax-free.
Your employer may also match a percentage of your contributions. That match doesn’t show as a deduction on your pay stub since it’s additional money your employer puts in on your behalf, but your own contributions will be clearly listed.
Other Voluntary Deductions
Your pay stub may include several other withholdings you’ve opted into. Common ones include contributions to a Health Savings Account (HSA) or Flexible Spending Account (FSA), which let you set aside pre-tax dollars for medical expenses. Life insurance premiums beyond any basic coverage your employer provides for free, long-term disability insurance, and dependent care FSA contributions can also appear as deductions. Union dues, commuter benefit programs, and charitable giving through payroll are other possibilities.
Court-Ordered Garnishments
In some cases, your employer is legally required to withhold money from your paycheck to satisfy a debt. This is called wage garnishment, and it happens through a court order or government agency directive, not because your employer chose to do it.
Child support and alimony are the most common garnishments. The law allows up to 50% of your disposable earnings to be garnished for support if you’re also supporting another spouse or child, or up to 60% if you’re not. An additional 5% can be taken if payments are more than 12 weeks overdue.
Other types of garnishments include IRS or state tax levies for unpaid taxes, federal student loan garnishments (up to 15% of disposable earnings for defaulted loans), and general creditor garnishments for debts like unpaid credit cards or medical bills. For those general garnishments, the weekly amount can’t exceed 25% of your disposable earnings or the amount your earnings exceed 30 times the federal minimum wage, whichever is less.
How to Check Your Withholdings
Your pay stub itemizes every deduction, so it’s worth reviewing it at least once or twice a year. If your federal tax withholding seems too high or too low, you can submit an updated W-4 to your employer at any time. The IRS offers a free Tax Withholding Estimator online that walks you through your income, deductions, and credits to recommend the right W-4 settings. Getting this right helps you avoid a large tax bill or an unnecessarily big refund, which is essentially an interest-free loan to the government.
For benefit-related deductions, check during your employer’s open enrollment period each year to make sure you’re not paying for coverage you don’t need or missing coverage you do.