How Federal Income Tax Withholding Works (Form W-4)

Federal income tax is usually the largest tax line on a pay stub, and it is also the one that varies most between people with the same pay. The reason is Form W-4, the form each employee gives their employer to guide withholding.

What withholding is

The US income tax system is pay-as-you-go. Rather than paying the whole year's tax in April, employees have tax withheld from each paycheck. The employer sends it to the IRS, and it shows up as a credit when the employee files their return. If too much was withheld, the difference comes back as a refund; if too little, the employee owes the balance.

Withholding is an estimate. It cannot know about every source of income or deduction unless the employee tells the employer through the W-4.

The Form W-4 since 2020

The IRS redesigned Form W-4 for 2020. The old version used withholding allowances; the current design removed allowances and asks for dollar amounts instead. It has five steps, and only Steps 1 and 5 are required for everyone.

Step 1: Personal information and filing status

Name, address, Social Security number and filing status: single or married filing separately, married filing jointly, or head of household. Filing status sets which withholding table the employer uses.

Step 2: Multiple jobs or spouse works

If the employee holds more than one job at a time, or is married filing jointly and the spouse also works, this step adjusts withholding so the combined income is taxed at the right rates. The form offers a few ways to do this, including checking a box on both W-4s.

Step 3: Claim dependents and other credits

Employees who expect to claim the child tax credit or credit for other dependents enter the dollar amount here, which reduces withholding.

Step 4: Other adjustments

• 4(a) Other income not from jobs, such as interest or dividends, to have tax withheld on it.
• 4(b) Deductions beyond the standard deduction, which reduce withholding. The 2026 form also lets employees account for the new deduction for qualified overtime compensation.
• 4(c) Extra withholding: a flat extra amount per pay period.

Step 5: Sign

An unsigned form is not valid.

You can read the current form and instructions at IRS: About Form W-4.

How the employer turns the W-4 into a number

Employers use IRS Publication 15-T, which provides the withholding methods and tables for each year. In broad terms, the calculation:

1. Takes wages for the period and subtracts pre-tax deductions such as a traditional 401(k).
2. Converts the amount to an annual figure based on pay frequency.
3. Adjusts for Step 4(a) and 4(b) amounts.
4. Applies the tax rate schedule for the filing status (and Step 2 if checked).
5. Subtracts the Step 3 credits.
6. Converts back to a per-period amount and adds any Step 4(c) extra withholding.

For example, two employees each earning $2,000 biweekly could see very different withholding: one single with no adjustments, the other married filing jointly with $2,000 in dependent credits entered in Step 3. The second will have noticeably less withheld each period.

Supplemental wages such as bonuses

Bonuses, commissions and similar payments can be withheld using a flat rate instead of the regular tables when paid separately. According to IRS Publication 15, the flat rate is 22% for 2026, and 37% on supplemental wages above $1 million in a year. This is why a bonus check can look more heavily taxed than a regular paycheck, even though the final tax is settled on the return.

Things worth knowing

• Older W-4s still count. Employees who filed a W-4 before 2020 are not required to submit a new one, and employers keep using the old information. A new W-4 is needed to change withholding.
• Claiming exempt is yearly. An employee who qualifies to claim exemption from withholding must give a new W-4 each year to keep it.
• No W-4 on file. If a new employee does not provide one, employers generally withhold as if the employee were single with no adjustments.
• Withholding does not affect FICA. Social Security and Medicare are fixed percentages, covered in our FICA guide.
• Pay frequency matters. The same annual pay spread over different schedules produces the same yearly estimate but different per-check amounts. See pay frequency compared.

Checking your withholding

The IRS Tax Withholding Estimator helps employees decide what to enter on a new W-4, especially after a life change such as marriage, a new child or a second job. This guide is general information; for your own situation, a tax professional is the right person to ask.

Withholding on PayStubNest stubs

When you create a pay stub, you enter the W-4 details and the calculator applies federal withholding for the pay frequency you choose, alongside FICA and state tax. To see where the result appears on the stub, read how to read a pay stub, and for everything between gross and take-home, gross pay vs net pay.