How Is Federal Withholding Calculated: W-4, Brackets, and Credits

Federal income tax withholding is calculated by taking your paycheck, projecting it out to an annual income, subtracting the standard deduction for your filing status, running what remains through the IRS tax brackets, subtracting any credits you claimed on your W-4, and dividing that annual tax figure back down to one pay period. Your employer runs this calculation every payday using the variables you provided on Form W-4 and the tables the IRS publishes in Publication 15-T. For 2026, a single filer with $1,700 of taxable biweekly wages and no W-4 adjustments would see roughly $120 withheld per paycheck.

What Your W-4 Tells Payroll

Everything starts with Form W-4, the “Employee’s Withholding Certificate.” The entries on that form give your employer’s payroll system the variables it plugs into the calculation.¹

Step 1 asks for your filing status: Single, Married Filing Jointly, or Head of Household. That one choice sets two things at once, your standard deduction and which set of tax brackets applies to your income.²

Step 3 is for dependent credits. For 2026, each qualifying child under 17 counts for $2,200 and each other dependent counts for $500. These amounts come off your estimated annual tax dollar-for-dollar, so they lower every paycheck’s withholding.¹

Step 4 has three optional lines. Line 4(a) is for other income without withholding, such as interest or dividends, so payroll can cover it. Line 4(b) is for extra deductions if you plan to itemize beyond the standard amount. Line 4(c) lets you request a flat additional dollar amount withheld from each paycheck, which is the simplest way to add cushion if you tend to owe at filing time.¹

You can also claim exemption from withholding entirely, but only if you had zero federal income tax liability last year and expect zero this year. An exempt W-4 expires annually; you have to submit a new one by February 15 to keep it in effect, or your employer will start withholding as single with no adjustments.³

What Counts as Taxable Wages

The calculation doesn’t start with your full gross pay. It starts with gross pay minus certain pre-tax deductions, which shrink the income figure payroll actually taxes.

Pre-tax 401(k) and 403(b) contributions are excluded from wages for federal income tax withholding, though they still count for Social Security and Medicare.⁴
Employer-sponsored health insurance premiums paid pre-tax through a cafeteria plan are excluded from taxable wages.
Contributions to a medical or dependent care FSA under a Section 125 plan also reduce the taxable wage base.

Put concretely: if your biweekly gross is $2,000 and you defer $300 into a pre-tax 401(k), payroll starts the withholding calculation at $1,700, not $2,000.

The Step-by-Step Calculation

Modern payroll systems use the Percentage Method described in Publication 15-T’s Worksheet 1A.⁵ The example below follows a single filer paid biweekly, $1,700 in taxable wages per period, no dependents, no other W-4 adjustments, for 2026.

Annualize the Wages

Multiply your taxable per-period wages by the number of pay periods in the year. Biweekly is 26 periods, so $1,700 × 26 = $44,200 estimated annual wages. Anything entered on W-4 line 4(a) is added to this annual figure.

Subtract the Standard Deduction

Payroll subtracts the standard deduction that matches your filing status. The 2026 amounts, reflecting increases under the One, Big, Beautiful Bill signed into law in 2025, are:²

Single or Married Filing Separately: $16,100
Married Filing Jointly: $32,200
Head of Household: $24,150

Extra deductions from W-4 line 4(b) come off here too. In the example, $44,200 − $16,100 = $28,100 of tentative taxable income.

Apply the Tax Brackets

The remainder runs through the 2026 marginal brackets. For a single filer:²

10% on income from $0 to $12,400
12% from $12,401 to $50,400
22% from $50,401 to $105,700
24% from $105,701 to $201,775
32% from $201,776 to $256,225
35% from $256,226 to $640,600
37% over $640,600

On $28,100 of taxable income: the first $12,400 is taxed at 10%, giving $1,240. The remaining $15,700 sits in the 12% bracket, giving $1,884. Estimated annual federal income tax: $3,124. Only the income inside each bracket is taxed at that bracket’s rate. Crossing into a higher bracket never raises the tax on the income below it.

Subtract Credits and Divide

Any dependent credits from W-4 Step 3 come off the annual tax figure next. With no dependents in the example, $3,124 stands. Divide by 26 pay periods: $3,124 ÷ 26 = $120.15 withheld per biweekly paycheck. If you asked for extra withholding on line 4(c), that flat amount is added on top. A $50 extra request would push the total to $170.15.¹

Bonuses and Other Supplemental Wages

Bonuses, commissions, overtime, and severance are treated as “supplemental wages” and typically don’t go through the calculation above. Employers can bundle them into your regular wages and use the Percentage Method, but most apply a flat rate instead. Supplemental wages up to $1 million in a calendar year are withheld at a flat 22% for federal income tax, and your W-4 filing status and credits don’t factor in.⁶

Any portion of supplemental wages above $1 million from a single employer in a year is withheld at 37%, the top marginal rate. That mandatory rate applies regardless of what’s on your W-4.⁷

This is why bonuses feel like they’re taxed harder. The 22% is a withholding rate, not a tax rate. If it’s more or less than your actual marginal rate, the gap is settled on your return.

FICA Is a Separate Calculation

Federal income tax withholding is only part of what leaves your paycheck. FICA, listed separately on your stub, has its own rules: 6.2% for Social Security plus 1.45% for Medicare, a combined 7.65% of your gross wages, with your employer matching the same amount.

The base is different too. Most pre-tax deductions that lower your income tax withholding do not lower FICA. A 401(k) contribution is a clean example: excluded from federal income tax withholding, still subject to Social Security and Medicare.⁴

Social Security tax stops once your earnings hit the annual wage base, $184,500 for 2026. Above that, only the 1.45% Medicare portion continues.⁸ An additional 0.9% Medicare surtax applies to wages above $200,000 for single filers or $250,000 for married filing jointly. Employers must begin withholding the surtax once your wages pass $200,000 in a calendar year, no matter your filing status.⁹

Checking and Adjusting Your Withholding

Your W-4 isn’t fixed. Life changes push withholding out of alignment with what you’ll actually owe, and the IRS suggests a review after events like a new job, marriage or divorce, a new child, buying a home, or a meaningful income change.¹⁰

The IRS Tax Withholding Estimator at irs.gov/W4app is the fastest way to check whether your current setup is on track. Have your recent pay stubs and last year’s return handy. The tool works through your income, deductions, and credits and produces a pre-filled W-4 you can hand to your employer. Once a year, and after any major life change, is a reasonable rhythm.

1
Internal Revenue Service. Form W-4, Employee’s Withholding Certificate
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
3
Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate
4
Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax
5
Internal Revenue Service. Publication 15-T (2026), Federal Income Tax Withholding Methods
6
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
7
eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments
8
Social Security Administration. Contribution and Benefit Base
9
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
10
Internal Revenue Service. Tax Withholding Estimator