This guide will help you understand how calculating federal taxes works, but at the same time, our free calculator will help you estimate taxes for the current filing year. 

While we are on the subject of taxes, to be able to calculate federal tax withholdings, make sure you have your Form W–4 close by to follow the guidelines below and fill in the necessary information accordingly. Form W–4 will help you have a better insight into your filing status, dependents, multiple jobs (if you have them), or any other necessary information.

What is federal income tax?

Levied by the IRS, federal income taxes are taxes all individuals, businesses, and legal entities have to pay based on their annual earnings (including salaries, wages, tips, etc.) Federal income tax rates range from 10% to 37% and depend on the taxpayer’s filing status and annual income.

The government uses the money collected from taxes to fund the economy of each state. In other words, tax revenue is used for education, health, transportation, infrastructure, etc.

How does federal income tax withholding work?

Employees must be aware of federal income taxes withheld from their paychecks — such taxes are withheld by the employer from each paycheck. 

The amount of those deductions largely depends on:

• Your income, and 
• Information in your Form W–4.

Form W–4 is the IRS document where you will provide information such as your:

• Filing status,
• Number of dependents,
• Number of children,
• Additional jobs,
• Allowances, etc.

Each time you start a new job or go through any changes that would affect the Form W–4 information — such as, for instance, changing your address — it’s your responsibility to adjust your Form W–4 accordingly.

Bear in mind that by filling out your Form W–4 accurately, you can avoid overpaying or even owing money to the IRS during tax season.

What does federal income tax withholding include?

Employees may see two types of federal taxes on their paychecks:

1. Federal withholding, and 
2. Federal Insurance Contributions Act (FICA) withholding.

Federal withholding

Federal withholding mainly depends on your income and filing status — i.e. the amount you earn and the information you provide on Form W–4. 

To calculate your income tax withholding, look at the chart below and determine your tax brackets first. Tax brackets indicate the tax rate you must pay on each part of your income.

Federal withholding tax brackets 2023

So, for instance, a single taxpayer who earned $40,000 in 2022 will pay 10% of the first $11,000 of that income, and the next (and last) portion will be taxed at 12%. This tax system is called the progressive tax system, which means that the more you earn, the higher the tax rate you will have to pay.

FICA withholding

Apart from income tax withholding, FICA taxes are also deducted from each paycheck. By paying FICA taxes, you contribute to your Social Security and Medicare funds which you will be allowed to use after you retire.

The following are withholding rates regarding both: 

• Social Security taxes — The total tax rate is 12.4% (6.2% is paid by the employer and 6.2% by the employee up to the taxable maximum of $160,200 for 2023), and
• Medicare taxes — The total tax rate is 2.9% (1.45% is paid by the employer and 1.45% by the employee).

Self-employed individuals pay the combined employee and employer amount  — 12.4% Social Security tax (on up to $160,200) and 2.9% Medicare tax (on the entire net earnings). Moreover, self-employed individuals whose earnings exceed $200,000 pay an additional 0.9% in Medicare taxes.

The deductions your taxable income is subjected to 

The above-mentioned taxes are fixed amounts, and you cannot avoid paying them. Luckily, your taxable income is subject to deductions — amounts that may significantly lower your taxable income. This means that you don’t pay taxes on such items.

Taxpayers may choose between 2 types of deductions:

1. Standard deduction — Fixed amount that is based on your age, filing status, or whether you are disabled or dependent (see more information on cases when you can’t use the standard deduction), or 
2. Itemized deduction — Not fixed and includes mortgage interests, charitable contributions, disaster losses, medical or dental bills, etc.

Don’t forget to add deductions in the calculator above — and bear in mind that you can only choose to claim one type of deduction.

Standard deduction

According to the IRS, as of the tax year 2023, the standard deduction ranges are the following:

• For single filers — $13,850,
• For married, filing jointly — $27,700,
• For married, filing separately — $13,850, and
• For head of households — $20,800.

Itemized deduction

People usually choose the standard deduction. However, if you decide to itemize deductions, you must:

• Keep the receipts off all your expenses, and
• List the types and amounts in the Schedule A of Form 1040.

Who is exempt from federal income taxes? 

Still, there are some circumstances when certain individuals or organizations are freed from paying federal income taxes, and they are considered tax-exempt.

The following are tax-exempt individuals or organizations:

• Nonprofit organizations — Religious, humanitarian, the Red Cross, churches, etc.
• Low-income taxpayers — Individuals who are not required to pay taxes since their earnings are below the tax threshold, meaning their income is not higher than the standard deduction. For instance, a single taxpayer under 65 years of age who earns less than $12,950 a year is considered a low-income taxpayer — according to the Tax Year 2022 Filing Thresholds by Filing Status.
• Individuals who qualify for the Earned Income Tax Credit (EITC) — Eligible individuals are those with low to moderate incomes (with or without dependents), and the credit amount depends on their filing status and the number of qualifying dependents. The said credit lowers the amount of taxes owed to the government.
• US citizens or resident aliens of the United States working in a foreign country — According to the Foreign Earned Income Exclusion, such individuals are not required to pay taxes on income of up to $120,000 earned working abroad (for the year 2023).

Federal taxes — summary

The following is a breakdown of federal taxes that apply across the US and concern employees and employers.

Employees are responsible for paying:

• Federal income tax — The tax rate depends on your earnings and the information you provide on your W–4, 
• FICA taxes — Consist of Social Security tax (employees’ share is 6.2%) and Medicare taxes (employees pay 1.45%), and
• Self-employment tax (SE) — This tax applies to the self-employed and amounts to 15.3%.

On the other side, employers are required to pay:

• FICA taxes — 6.2% for Social Security, 1.45% for Medicare taxes, and
• Federal Unemployment Tax Act (FUTA) — The tax rate equals 6% and applies to the first $7,000 of employees’ wages.

Finally, both employers and employees are required to pay:

• FICA taxes — They equally pay FICA taxes that consist of Social Security taxes and Medicare taxes each paying 7.65% for every payday (Social Security tax: 6.2% and Medicare tax: 1.45%).

Federal paycheck calculator conclusion/disclaimer

We hope you find this federal paycheck calculator and accompanying explanations helpful. We advise you to pay attention to the information we’ve highlighted and the links we’ve provided, to make sure you calculate your federal withholdings correctly. 

Please note that this calculator was created in Q2 2023, so any changes regarding tax brackets or related regulations that were included later than that may not be included in this guide. 

Bear in mind that the results you get using our calculators may not be entirely accurate or complete and there might be deviations. We strongly advise you to consult with the appropriate institutions and/or certified representatives before acting on any legal matters.

Clockify is not responsible for any losses or risks incurred should this guide (or its calculators) be used without further guidance from legal or tax advisors.