Understanding Tax Withholding: Where Your Money Goes

By Nishikant Xalxo | Tax Calculation Expert | Updated: January 10, 2025 | 10 min read

That first paycheck shock—where $1,000 becomes $750—is universal. Understanding withholdings helps you budget accurately and spot errors. Here's what's deducted and why.

United States Federal Deductions

1. Federal Income Tax (FIT)

Progressive tax based on annual income and filing status.

Tax Bracket (2025) Single Filer Married Filing Jointly Rate
10% $0 - $11,600 $0 - $23,200 10%
12% $11,601 - $47,150 $23,201 - $94,300 12%
22% $47,151 - $100,525 $94,301 - $201,050 22%
24% $100,526 - $191,950 $201,051 - $383,900 24%
Example: Single, $60,000/year ($5,000/month) 
Monthly taxable: $5,000
Annual taxable: $60,000

Bracket 1: $11,600 × 10% = $1,160
Bracket 2: ($47,150 - $11,600) × 12% = $4,266
Bracket 3: ($60,000 - $47,150) × 22% = $2,827

Annual FIT: $1,160 + $4,266 + $2,827 = $8,253
Monthly FIT: $8,253 ÷ 12 = $688

2. FICA Taxes (Social Security & Medicare)

On $60,000 salary: 
Social Security: $60,000 × 6.2% = $3,720/year ($310/month)
Medicare: $60,000 × 1.45% = $870/year ($73/month)
Total FICA: $4,590/year ($383/month)

3. State Income Tax (Varies)

State Tax Rate Notes
California 1-13.3% Progressive, high earners pay more
Texas, Florida 0% No state income tax
New York 4-10.9% Progressive, NYC adds local tax
Pennsylvania 3.07% Flat rate

India Tax Deductions (2025)

1. Income Tax Slabs (New Regime)

Income Range (₹) Tax Rate
0 - 3,00,000 0%
3,00,001 - 6,00,000 5%
6,00,001 - 9,00,000 10%
9,00,001 - 12,00,000 15%
12,00,001 - 15,00,000 20%
Above 15,00,000 30%
Example: ₹8,00,000 annual salary (₹66,667/month) 
Bracket 1: ₹3,00,000 × 0% = ₹0
Bracket 2: ₹3,00,000 × 5% = ₹15,000
Bracket 3: ₹2,00,000 × 10% = ₹20,000

Annual tax: ₹35,000
Monthly TDS: ₹35,000 ÷ 12 = ₹2,917

2. Provident Fund (PF)

On ₹8,00,000 salary (basic ₹5,00,000): 
Employee PF: ₹5,00,000 × 12% = ₹60,000/year (₹5,000/month)
Employer PF: ₹60,000/year (₹5,000/month)
Total PF: ₹1,20,000/year

How to Check Your Paystub

US Paystub sections:

  1. Gross Pay: Hours × Rate before any deductions
  2. Federal Tax: FIT withholding (based on W-4)
  3. FICA: Social Security + Medicare
  4. State Tax: If applicable
  5. Net Pay: Take-home after all deductions

India Payslip sections:

  1. Basic Salary: Taxable base component
  2. HRA, LTA, etc.: Allowances (some tax-exempt)
  3. Gross Salary: Total before deductions
  4. PF: Provident Fund deduction
  5. TDS: Tax deducted at source
  6. Net Salary: Take-home pay
About the Author: Nishikant Xalxo built SHADER7's salary calculator to handle complex overtime and tax scenarios for both US and Indian payroll systems. Contact: nxdecore@gmail.com

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