What to Deduct From a Paycheck: A Plain-English Guide for New Employers in 2026

If you just hired your first employee and you're staring at their gross pay wondering what comes out before you cut the check, this guide is for you. Every U.S. paycheck has roughly six things subtracted from gross pay: federal income tax, Social Security, Medicare, state income tax, anything the employee chose to take out (health insurance, retirement), and any court-ordered deductions like child support. You don't need to memorize the rates. The MyStubs paycheck calculator does the math for you. This guide explains what each line is, who pays it, why it exists, and how to enter the numbers correctly so the take-home figure matches what you'll actually deposit in your employee's bank account.

Four questions any new employer has to answer:

• What categories of money come out of every paycheck, and which apply to my employee?
• Which deductions does the employee pay (their tax), and which do I pay as the employer (my tax)?
• What single form do I need from my new hire before I can run payroll legally?
• How do I use the calculator to produce the right number for each pay period, and a paystub I can hand to my employee?

One running example throughout. Maria Vargas owns a small bakery in Phoenix, Arizona. She just hired Ben Carter, her first employee. Full-time at $20/hour, 40 hours a week, paid every two weeks. Ben's biweekly gross pay is $20 × 40 × 2 = $1,600. We'll walk through every deduction Maria needs to take out before handing Ben his net check.

#What does "deduction" actually mean?

A deduction is any dollar amount the employer subtracts from gross pay before the worker receives the rest. "Gross pay" is the full amount earned for the pay period: hours worked times the hourly rate, or the period portion of an annual salary. "Net pay" is what's left after every deduction. The gap between the two is usually 22 to 35 percent of gross, depending on the state and what benefits the employee signed up for.

There are two kinds of deductions, and they behave differently in the math:

• Mandatory deductions. Federal and state taxes the law requires the employer to withhold. These go to a government agency, not to the employee. Federal income tax goes to the IRS. FICA (Social Security and Medicare) also goes to the IRS but is tracked separately for future benefits. State income tax goes to the state's department of revenue.
• Voluntary deductions. Anything the employee opted into when they filled out their benefit elections. Health insurance premiums, retirement contributions (a 401(k) is the most common), flexible spending accounts (FSA), health savings accounts (HSA), and so on. The employee chose these. The employer just funnels them through payroll because the money never touches the worker's bank account.

A useful mental picture: gross pay flows in at the top. Mandatory deductions happen regardless of what the employee wants. Voluntary deductions are choices the employee made on a benefits enrollment form. Net pay is what's left at the bottom after everything else has been peeled off. The MyStubs guide on what should appear on a paystub shows every line in the order a real stub prints them.

#The six things to subtract from every paycheck

The full set of categories. Most paychecks don't have all six. A worker in Texas has no state income tax line, and a part-timer may have no benefit elections. But every employee will have at least the first three.

1. Federal income tax. The biggest single deduction on most paychecks. The amount depends on the W-4 form the employee filled out (more on that in the next section). The IRS publishes withholding tables in Publication 15-T. For 2026, a single filer earning $1,600 biweekly has about $87 withheld for federal income tax under the standard W-4 setup.
2. Social Security tax (part of FICA). A flat 6.2% of gross pay, up to a yearly cap of $184,500 in 2026. Once the employee crosses that wage cap for the year, Social Security stops being deducted until January. For Ben's $1,600 biweekly check, this line is $1,600 × 6.2% = $99.20.
3. Medicare tax (also part of FICA). A flat 1.45% of gross pay, with no yearly cap. There's an extra 0.9% above $200,000 in annual wages, but most employees never hit that line. For Ben: $1,600 × 1.45% = $23.20.
4. State income tax. Varies wildly by state. Nine states have no broad-based wage income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire which only taxes investment income). Arizona has a flat 2.5% rate on taxable wages. For Ben earning $1,600 biweekly in Arizona, the state line is roughly $32.
5. State-program payroll deductions. A smaller group of states deduct money for state-run programs the employee benefits from later. California has SDI (state disability insurance, 1.30% of gross in 2026). New Jersey has a four-program stack (UI/WF/SWF, SDI, FLI). Washington has PFML (paid family medical leave) and Cares LTC (long-term care). Arizona has none of these, so Ben's stub won't have this line.
6. Voluntary deductions. Health insurance premiums (typically $50 to $200 per pay period for a single-person plan), retirement contributions (employees often choose 3 to 10% of gross going into a 401(k)), FSA/HSA contributions, parking or transit benefits, union dues, and post-tax things like Roth 401(k) or garnishments.

Now factor those into Ben's paycheck. Ben is single, no kids, doesn't have employer-sponsored health insurance (Maria's bakery is too small to offer it yet), no 401(k), no court orders. His paystub:

So Ben earned $1,600 of gross pay but takes home about $1,358.60. That's a "net pay rate" of roughly 85%, meaning Maria deducted about 15% to remit to the IRS and the State of Arizona. The exact percentage shifts upward with higher pay (more income falls into the 22% federal bracket instead of 12%) and shifts downward with bigger benefit elections. A $200 health premium would cut his federal tax base AND his FICA base, saving him roughly $30 to $40 per check.

#employee vs employer

This is the part that confuses most first-time employers: not every paycheck deduction comes out of the employee's gross pay. Some are taxes you owe as the employer, on top of what you pay the worker.

Two columns: things that come out of Ben's $1,600 (his money) and things Maria pays on top of his $1,600 (her bakery's money, never visible on Ben's check).

So Maria's real cost of employing Ben isn't $1,600 per check. It's $1,600 plus another roughly $122 for the employer FICA match (7.65% of $1,600), plus a small amount for unemployment taxes (FUTA and SUTA). Total fully-loaded cost: roughly $1,725 per pay period.

This matters when budgeting. If Maria thought she was paying Ben $20/hour and her cost was $20/hour, she'd be undershooting by about 8%. The actual cost of $20/hour labor in Arizona is closer to $21.50 to $22.00 once payroll taxes are layered in (and higher if she eventually offers benefits with employer contributions). For a deeper look at this employer-side math, see payroll tax vs. income tax.

A few states (Alaska, New Jersey, and Pennsylvania) also collect a small employee-side unemployment contribution. Maria wouldn't worry about this in Arizona, but a New Jersey employer would. The calculator handles this automatically once you pick the state.

#The one form you need from every new hire — the W-4

Before you can run payroll for a single check, you need your employee to fill out a Form W-4. The W-4 tells you how much federal income tax to withhold from their paychecks. Without it, you're guessing, and the IRS expects you to withhold at the highest single-filer rate as a default, which over-deducts and frustrates the worker.

The 2020 redesign of the W-4 dropped the old "allowances" concept and replaced it with five short steps:

• Step 1. Name, address, Social Security number, and filing status. Single, Married Filing Jointly, or Head of Household. Most workers know this from their last tax return.
• Step 2. Multiple jobs. If the worker has another job, or their spouse works, they check a box that triggers higher withholding to avoid a year-end tax bill.
• Step 3. Claim dependents. $2,000 per qualifying child under 17, $500 per other qualifying dependent (annual figure, the system converts to per-paycheck).
• Step 4. Other adjustments. Additional income to withhold on (a), extra deductions beyond the standard (b), and any flat dollar extra they want withheld each pay period (c).
• Step 5. Signature and date.

Once you have the W-4 in hand, the values from each step are inputs to the calculator's Federal tab. You don't compute anything yourself. You transcribe Ben's W-4 entries into the form and the calculator applies the IRS Publication 15-T percentage-method tables. For Ben (single, no dependents, one job, no extras), the Federal tab inputs are all defaults: Single filing status, $0 in every Step 3 and Step 4 field, "No" to multiple jobs.

The W-4 also has three exempt checkboxes for unusual cases: federal income tax exemption (rarely applies, mostly for low-income earners certain they'll owe nothing for the year), Social Security exemption (clergy in specific orders), and Medicare exemption (very narrow exceptions). When in doubt, leave these alone. Defaulting to taxed is the safe choice for new employers.

States with their own income tax usually have their own equivalent of the W-4. California uses Form DE 4. New York uses IT-2104. New Jersey uses NJ-W4. The calculator's State tab handles the state-side withholding using these forms' inputs. Arizona uses the federal W-4 as its source for state withholding too, so Maria doesn't need a separate Arizona form.

You're also required to verify the new hire's employment eligibility via Form I-9 within three business days of hire, but the I-9 doesn't drive paycheck math. It's a separate compliance step you keep in the employee's personnel file. Make sure you understand the FLSA recordkeeping rules in small business payroll recordkeeping before you start cutting checks. The records you have to keep aren't optional.

#How to use the MyStubs paycheck calculator step by step

Open the calculator hub. The hub lists every state. Click the work state where your employee is physically located when they perform the work. That takes you to a per-state page (the URL becomes /paycheck-tax-calculator/arizona for Ben).

The form on the per-state page has four tabs. You fill them in left to right:

Tab 1 — Earnings. Pay frequency (weekly, biweekly, semimonthly, monthly), tax year (defaults to current), pay date, and one earnings row per pay type. For Ben: Biweekly + 2026 + today's date + one row with Type = Hourly, Hours = 80 (40 per week × 2 weeks), Hourly Rate = $20. If Ben earns overtime, add a second row with Type = Hourly, Hours = OT hours, Rate = $30 (time-and-a-half). If you pay a bonus or commission this period, add another row with Type = Bonus or Commission so the calculator can apply the flat 22% supplemental rate the IRS expects on those.

Tab 2 — Federal. Transcribe Ben's W-4 into the form. Filing status = Single. Multiple jobs = No (Ben doesn't have a second job). Dependent amount = $0. Other Step 4 fields = $0. Exempt toggles = all No. The legacy W-4 toggle stays "No" because Ben submitted a current-version W-4 (any W-4 dated 2020 or later is the current version).

Tab 3 — State. Resident state = Arizona, work state = Arizona (the URL choice prefilled both). If Ben lived in California and commuted into Arizona, the resident and work states would be different and reciprocity rules would apply. Arizona and California don't have reciprocity, so both would withhold and Ben would settle at year-end on his California return. Resident city = Phoenix, no Phoenix-specific income tax to add. State withholding rate = leave at the calculator's auto value unless you have a reason to override it.

Tab 4 — Benefits. Ben has no benefits this period, so every field stays at $0. When you eventually offer health insurance (say a $150 biweekly medical premium through a Section 125 plan), you'd put $150 in the Medical field. The calculator would automatically reduce both Ben's federal income tax base AND his FICA base. Section 125 premiums are pretax for both taxes, which is why offering them saves the employee about 25% of the premium amount in taxes they'd otherwise pay.

Submit the form. The results panel below shows four numbers:

The bar graph at the bottom proportions those slices so you can see at a glance where Ben's gross is going. That's your full paycheck math, done. Copy the net pay figure onto Ben's stub, deposit that amount, remit the deductions to the IRS and Arizona on the appropriate schedule (federal taxes typically monthly or semiweekly via EFTPS, state taxes per Arizona DOR rules), and you've completed one pay period of payroll.

#What to put on the paystub you give your employee

The calculator gives you the numbers. The paystub is the document that shows your employee where their money went. Most states require employers to provide a written wage statement on payday. Some are strict about exact content (California is the strictest; see Labor Code §226). Others just require "something" (Texas, most southern states). The MyStubs guide on what should appear on a paystub breaks down every required field, but the universal set looks like this:

• Employer block. Your business legal name, address, and EIN (last 4 digits is fine)
• Employee block. Ben's legal name, last 4 of SSN, employee ID if you use one
• Pay period. Start date, end date, and the actual pay date
• Earnings. Every pay type broken out by rate, with year-to-date totals
• Hours worked. For nonexempt (hourly) employees, every state requires this
• Pre-tax deductions. Itemized (Medical $150 separate from 401(k) $80, etc.)
• Tax withholdings. Federal Income Tax, Social Security, Medicare, State Income Tax, state-program lines if applicable
• Post-tax deductions. If any (Roth 401(k), garnishments, union dues)
• Year-to-date totals. Running column on every line
• Net pay and payment method. The final figure plus how it was paid (direct deposit, paper check)

Once your calculator output is reconciled, you can build the actual paystub using the MyStubs paystub generator. It pulls all the above into a clean wage statement formatted the way lenders, landlords, and state DOL audits expect to see.

#Common mistakes new employers make

The errors I see most often when small employers run their first few checks:

• Treating the employer FICA match as the employee's tax. The 6.2% Social Security and 1.45% Medicare deductions on the worker's stub are only the employee's half. You pay another 7.65% on top, which never appears on the worker's stub but does come out of your business checking account when you remit payroll taxes. This one trips up almost every first-time employer in their first quarter.
• Forgetting unemployment tax. FUTA is 0.6% on the first $7,000 of each employee's wages per year. Small, but it's a separate filing (Form 940). SUTA is bigger and varies by state. Arizona's new-employer SUTA rate is around 2.0% on the first $8,000 of wages in 2026. Both are 100% on the employer.
• Not reading the W-4 closely enough. Step 2(c) (multiple jobs box), Step 3 (dependents), and Step 4 (extras) are easy to miss. If Ben checks Step 2(c) and you don't transcribe that into the calculator's Federal tab, you'll under-withhold federal tax by hundreds of dollars across the year.
• Lumping a bonus into the regular salary row. The IRS expects bonuses to withhold at a flat 22% supplemental rate (37% above $1 million YTD). If you add the bonus into the regular earnings row, the calculator runs it through the bracket method and probably under-withholds. Always put bonuses in a separate row with Type = Bonus.
• Skipping the State tab for a remote employee. If your employee works from home in a different state than where your business is registered, the State tab needs the resident state set to where they actually work. Otherwise the calculator reports the wrong state's withholding.
• Setting pretax benefits as post-tax. A health insurance premium run through a Section 125 cafeteria plan (which is what every modern employer-sponsored plan is) is pretax for both federal income tax AND FICA. Setting it as post-tax on the Benefits tab eliminates the FICA savings for the employee and overstates the federal tax base.
• Forgetting year-to-date totals. The calculator gives you per-period numbers. You also have to track YTD for every line because that's what shows up on the paystub and on the year-end W-2. Most payroll providers (Gusto, QuickBooks Payroll, ADP) do this automatically. If you're running by hand, keep a simple spreadsheet with one row per pay period.

#FAQs

#Q: I'm hiring my first employee. Do I really need a calculator, or can I just guess?

You can't guess. Federal and state law require accurate withholding, and under-withholding (or skipping payroll taxes entirely) creates penalties that compound monthly. The calculator gets you the right numbers in two minutes. Most small employers eventually graduate to a full payroll provider (Gusto, QuickBooks Payroll, ADP Run, OnPay) because those handle the remittance, the tax filings, and the year-end W-2 generation for you. The MyStubs calculator + paystub generator combo is a good starting point and a permanent backup for when you want to verify your provider's math.

#Q: Do I have to withhold federal income tax if my employee makes very little?

Usually yes, unless the employee specifically claims exemption on their W-4. The IRS exemption requirement is narrow: the employee must have had no federal tax liability the prior year AND expect to have none this year. For most employees that doesn't apply. A part-time worker still has some federal liability above the standard deduction. The default is to withhold per the Pub 15-T tables.

#Q: What if my employee doesn't give me a W-4?

The IRS instructs employers to withhold as if the employee is Single with no other adjustments, the highest standard rate. Tell the worker in writing that without a W-4 you're using the default. Most workers fill one out immediately once they realize they're being over-withheld.

#Q: Is FICA the same thing as federal income tax?

No. FICA is the combined Social Security (6.2%) and Medicare (1.45%) tax. Flat rates, partly capped (Social Security caps at $184,500 in 2026), and matched dollar-for-dollar by the employer. Federal income tax is the progressive bracket tax (10% to 37% in 2026) on the employee only, with the rate depending on the W-4 and the wage level. They both go to the IRS but they fund different programs and follow different rules. See payroll tax vs. income tax for the full breakdown.

#Q: What if I don't withhold the right amount?

You're liable for the difference, plus penalties. If you under-withheld federal income tax, the IRS collects from you (not the employee). If you under-withheld FICA, you owe both the employee's missed half AND the employer's match. The penalties accrue monthly, so catching errors quickly matters. Your safety net: run every pay period through the calculator, double-check the math against a real paystub, and use a real payroll provider once you have more than one employee or a complex pay structure.

#Q: Do I need to deduct anything for an independent contractor (1099) instead of an employee (W-2)?

No. Contractors are responsible for their own income tax and self-employment tax (the equivalent of both halves of FICA, paid at 15.3% on their net earnings). You pay them the gross amount per their invoice and issue a 1099-NEC at year-end if you paid them $600 or more. No W-4, no withholding, no employer FICA match, no unemployment tax. But classifying a worker as a contractor when the IRS considers them an employee is a major source of penalties. The W-9 vs W-2 explainer walks through how the IRS distinguishes the two and what triggers a misclassification finding.

#Q: How often do I need to send the withheld taxes to the IRS and the state?

Federal taxes get remitted through EFTPS on a schedule the IRS assigns you based on your total tax liability the prior year, either monthly or semiweekly. New employers usually start on the monthly schedule. State remittance schedules vary. Arizona is monthly for most new employers. Both feds and state will tell you when your payroll-tax payments are due. You also file quarterly returns (federal Form 941 every three months; states have their equivalent).

#Q: Does the calculator give me numbers I can use for actual payroll tax filing?

Yes for the per-period figures. For quarterly filings (Form 941) and the year-end W-2, you'll sum across pay periods. Keep a running spreadsheet or use a payroll provider that does it for you. The calculator's results panel is per-period only. It's not a payroll-system replacement, it's a "what should this check withhold" tool.