Federal Income Tax

• The most significant of all the statutory deductions is for federal income tax withholding. This is because the federal tax rates the Internal Revenue Service, or IRS, imposes are higher than any other taxes you pay. The amount of federal tax your employer will withhold and pay on your behalf depends on the information you provide on a W-4 form. The W-4 allows you to claim a number of allowances for the deductions, credits and exemptions you anticipate claiming on your return, which ultimately reduce the amount of federal income tax you will owe. The more allowances you are eligible to claim on the W-4, the less your employer will withhold.
  
  

State Income Tax

• If you work in one of the 41 states that impose an income tax, your employer will also withhold money from your paycheck to cover some of your state income tax liability for the year. All 41 states impose the income tax at rates much lower than the federal income tax, and therefore, the amount your employer will withhold is significantly lower. Many states, such as New Jersey for example, allow your employer to calculate the amount to withhold based on the information you provide on your federal W-4 form. However, New Jersey allows you to file a state-specific W-4 form if you anticipate significant differences in your federal and state income tax returns.
  
  

Social Security and Medicare

• The federal government requires all taxpayers to make separate contributions to the Social Security and Medicare programs. As a result, your employer must make statutory deductions from your paycheck to cover these taxes. For the 2011 tax year only, the federal government requires your employer to withhold 4.2 percent of your first $106,800 of earnings to cover Social Security. However, this is a temporary rate, and it will increase to 6.2 percent in 2012. In addition, your employer will withhold 1.45 percent of your total paycheck to pay Medicare taxes.
  
  

State Disability Taxes

• Some states require your employer to provide disability benefits for employees through a state-approved or state-operated program. New York is one of the states that require disability coverage for employees who work for employers located in the state. However, the state allows employers to withhold one-half percent of your weekly wages to fund the disability insurance program, for a maximum of 60 cents per week. Since this deduction is state-specific, you may not be subject to this payroll deduction.