When you earn $100 at your job, you won’t take home the full amount. Understanding exactly how much gets deducted in taxes helps you budget accurately and plan your finances better.
The Quick Answer: What Gets Taxed From Every $100
For every $100 you earn at a typical W-2 job, you’ll pay $7.65 in federal payroll taxes—that’s before federal income tax, state taxes, or other deductions.
This $7.65 breaks down as:
- $6.20 for Social Security tax (6.2% rate)
- $1.45 for Medicare tax (1.45% rate)
Your total tax burden per $100 depends on your income bracket, filing status, and state of residence.
Federal Payroll Taxes: The Non-Negotiable 7.65%
Every working American pays these federal payroll taxes as automatic deductions:
| Tax Type | Rate | Per $100 | Annual Cap (2024) |
| Social Security | 6.2% | $6.20 | $160,200 wage base |
| Medicare | 1.45% | $1.45 | No cap |
| Total FICA | 7.65% | $7.65 | – |
Important: Once you earn more than $160,200 in 2024, Social Security tax stops on additional income. Medicare tax continues indefinitely, and high earners pay an additional 0.9% Medicare tax on income over $200,000.
Federal Income Tax: The Variable Component
Federal income tax depends on your tax bracket. The U.S. uses a progressive tax system where higher income gets taxed at higher rates.
The brackets work incrementally—only income above each threshold gets taxed at the higher rate, not your entire income.
State Taxes: Location Matters
State income tax varies by location. Seven states have no income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Washington), while others can tax up to 13.3%.
Self-Employment Tax: Higher Rates for Freelancers
If you’re self-employed, you pay both sides of payroll taxes—called self-employment tax:
- 15.3% self-employment tax ($15.30 per $100)
- Plus regular income tax on top
Many freelancers should set aside 25-30% of each payment for taxes.
Pre-Tax Benefits Reduce Your Tax Burden
Contributing to retirement accounts and health savings accounts reduces your taxable income:
- 401(k) contributions: Up to $22,500 in 2024
- HSA contributions: Up to $3,650 (individual) or $7,300 (family)
- Traditional IRA: Up to $6,500 in 2024
Common Tax Questions Answered
Why is my federal income tax withholding higher than 10% even though I’m in the 10% bracket?
The 10% bracket only applies to the first slice of taxable income. Higher income gets taxed at 12%, 22%, or higher rates, creating a blended effective rate that’s higher than 10%.
Do I pay payroll taxes in a state with no income tax?
Yes. Social Security and Medicare are federal taxes that apply nationwide. State income tax is separate.
What happens when I pass the Social Security wage base?
The 6.2% Social Security withholding stops for the rest of the year once you hit $160,200. Medicare tax continues indefinitely.
How much should a freelancer set aside per $100 earned?
Plan on roughly $15.30 for self-employment tax plus 10-24% (or more) for income tax. Setting aside $25-$40 per $100 is common.
Is the employer share of FICA counted toward my taxes?
No. Employers pay their own 7.65%. Employees see only their half on the pay stub.
Can I reduce the tax on my paycheck to zero?
Only if your total income after deductions is below the standard deduction and you have no FICA-covered wages—rare for full-time employees.
Tax Planning Strategies
Understanding your tax burden helps with financial decisions:
- Budgeting: Base your monthly budget on take-home pay, not gross income
- Emergency funds: You need 3-6 months of expenses based on net income
- Tax optimization: Use the Child Tax Credit and other credits to reduce your tax burden
- Business expenses: Self-employed individuals can utilize small business tax tips to reduce taxable income
The Bottom Line
Every $100 you earn faces multiple layers of taxation. At minimum, you’re paying $7.65 in federal payroll taxes, with total taxes typically ranging from $16-$35 per $100 depending on your income and location.
Understanding these numbers helps you set realistic financial expectations and make informed decisions about your money.
For more comprehensive financial guidance and money management tips, visit Wealthopedia – your trusted source for personal finance education.
