US Taxes for Workers

The Four-Layer US Tax Stack

Every US worker’s pay sits in the same four-layer tax stack. The layers interact but are computed in different parts of the year.

1. Federal income tax — progressive, calculated on taxable income (gross minus standard or itemized deduction) using the seven-bracket structure.
2. Social Security and Medicare (FICA) — flat-rate payroll tax withheld per paycheck. The employer matches both. Social Security caps at the 2026 wage base of $184,500; Medicare has no cap but adds a 0.9% surtax above the high-earner threshold.
3. State income tax — varies from 0% to roughly 13% in the top California bracket. Nine states have no general state income tax.
4. Local income tax — a small set of cities and counties. New York City, Yonkers, Philadelphia, and a few others.

Withholding on each paycheck is the IRS and state revenue departments’ best estimate of what you will owe at year end. The Take-Home Pay Calculator models the per-paycheck layer. The Tax Estimator models the annual layer. The two often differ slightly, especially for workers with bonuses, freelance income, or multiple jobs.

Federal Brackets and Standard Deduction

For 2026, the seven individual federal brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Public Law 119-21 made the seven-rate structure permanent. The inflation-adjusted thresholds for 2026 are:

• 10% on taxable income up to $12,400 (single) or $24,800 (married filing jointly).
• 12% on the next slice up to $50,400 single or $100,800 MFJ.
• 22% on the next slice up to $105,700 single or $201,775 MFJ.
• 24% on the next slice up to $201,775 single or $383,900 MFJ.
• 32% on the next slice up to $256,225 single or $487,450 MFJ.
• 35% on the next slice up to $640,600 single or $731,200 MFJ.
• 37% on taxable income above those thresholds.

The 2026 standard deduction is $16,100 for single filers, $32,200 for married filing jointly, and $24,150 for head of household. The additional standard deduction for age 65+ or blindness is $1,650 per qualifying condition in 2026. The Federal Tax Brackets 2026 guide has the full table.

For most US workers, taxable income is gross minus pre-tax deductions minus the standard deduction. Most tax-saving strategies operate on this stack: maximize pre-tax 401(k), HSA, and FSA contributions, then claim any eligible credits.

FICA Mechanics

FICA is a 7.65% payroll tax on every W-2 paycheck, split into 6.2% Social Security and 1.45% Medicare. The employer pays a matching 7.65% separately. Two additional rules matter:

• Social Security wage base. 6.2% applies only to wages up to the 2026 cap of $184,500. After that, the 6.2% stops. December paychecks therefore look larger for workers whose year-to-date wages cross the cap mid-year.
• Additional Medicare Tax. 0.9% on wages above $200,000 single or $250,000 MFJ. Employers withhold the surtax only on wages the employer pays above the threshold; the threshold itself is reconciled on the return.

For a $75,000 salary, FICA is roughly $5,738 — larger than federal income tax after the standard deduction. For a $150,000 salary, FICA is $11,439. The FICA guide explains the mechanics; the wage base history guide shows the long-run cap.

State and Local Tax

State income tax is the layer that varies the most. Nine states — Alaska, Florida, Nevada, New Hampshire (interest and dividends), South Dakota, Tennessee, Texas, Washington, and Wyoming — have no general state income tax. The remaining 41 states use flat rates, progressive brackets, or a wage-base adjustment. Top state rates currently range from about 5% (Arizona, Colorado, Kansas) to 13.3% (top California bracket).

State conformity is a separate question. Federal law does not force states to adopt the OBBBA deductions or any other federal change. Several states — including California, New York, and others — automatically conform; others wait for legislative action. The No-Tax State Math guide explains the no-tax-state case in detail.

A small number of cities add their own income tax on top of state tax. New York City residents pay both a state and a city income tax, with the two calculated on slightly different bases. The Real Take-Home Pay by State tool covers the state layer; local tax is a manual adjustment for workers in the few affected cities.

Common Credits and Adjustments

Credits reduce tax liability dollar for dollar, while deductions reduce taxable income. The most common US worker credits are:

• Child Tax Credit (CTC): up to $2,200 per qualifying child in 2026, with up to $1,700 refundable. The credit begins phasing out at $200,000 of AGI single or $400,000 MFJ. A work-eligible Social Security number is required for the taxpayer and the child.
• Earned Income Tax Credit (EITC): for working households below the phaseout thresholds. Larger credit for households with qualifying children.
• Child and Dependent Care Credit: for childcare expenses when both parents work. The OBBBA increased the credit rate from 35% to 50% of qualifying expenses and raised the maximum eligible expense.
• Saver’s Credit: for retirement contributions at lower income levels. Useful alongside a 401(k) or IRA.

The Tax Estimator does not model credits, because credit eligibility depends on household composition, dependents, and a wider set of inputs than a single income field. Pair the calculator with a free filing tool or a CPA to confirm credit eligibility.

What the OBBBA Changes

Public Law 119-21, signed July 4, 2025, made the seven-rate structure permanent and added temporary deductions for tax years 2025 through 2028:

• Qualified tips: up to $25,000 annually for voluntary cash and charged tips in qualifying occupations, phased out above $150,000 MAGI single or $300,000 MFJ.
• Qualified overtime: up to $12,500 single or $25,000 MFJ for the FLSA-required premium portion of overtime pay, with the same MAGI phaseout.
• Qualified passenger vehicle loan interest: up to $10,000 for interest on a loan used to buy a new US-assembled personal-use vehicle. Loan must originate after December 31, 2024. Phased out above $100,000 MAGI single or $200,000 MFJ.
• Enhanced senior deduction: $6,000 per qualifying person age 65+, doubled for joint filers, phased out above $75,000 MAGI single or $150,000 MFJ.
• SALT cap increase: $40,000 cap in 2025, rising 1% per year through 2029, then resetting to $10,000 in 2030.
• Child Tax Credit: $2,200 per qualifying child, with inflation adjustments starting in 2026.

None of these reduce FICA. None change what your employer withholds automatically for 2025. The 2026 Form W-4 lets workers account for expected deductions so withholding can be lower during the year. The OBBBA guide is the full breakdown; the Tax Estimator now supports a Schedule 1-A comparison for tips and overtime.

Withholding versus Annual Liability

Paycheck withholding is the employer’s estimate of what you will owe at year end. Annual liability is the actual amount you owe when you file. The two can differ for several reasons:

• The 2026 Form W-4 with a new deductions worksheet can lower withholding to reflect expected Schedule 1-A deductions. Without an updated W-4, the same benefit is realized at filing.
• Bonuses often have flat 22% federal withholding regardless of bracket. A worker in the 12% bracket overpays federal tax on bonuses and is refunded the difference.
• Multiple employers in a year can cause excess Social Security withholding above the wage base. The excess is refunded on the return.
• Married filing jointly with two working spouses can produce a balance due because each spouse withholds at the higher single rate. The Marriage Bonus Penalty is the familiar name for this dynamic.

Use the Take-Home Pay Calculator to model withholding and the Tax Estimator to model annual liability. A large difference between the two numbers is a flag that the W-4 should be reviewed.

Multi-Year Tax Planning

Tax law changes at predictable intervals. Public Law 119-21 made the seven-rate structure permanent, so the next expected federal rate change is from new legislation, not automatic sunset. State tax rates are more variable.

Effective dates for the OBBBA temporary deductions are tax years 2025 through 2028. They will expire after December 31, 2028 unless Congress extends them. Workers whose compensation depends on tips, overtime, or senior income should plan for the deductions to disappear after 2028 and adjust their withholding accordingly during the final qualifying year.

The 2026 inflation adjustments are part of the standard annual cycle. The IRS publishes the next year’s brackets, standard deduction, FICA wage base, and the relevant phaseout thresholds each fall. The site refreshes the calculators and the bracket guide after each release.

Plan A: maximize pre-tax deductions

Pre-tax 401(k) contributions reduce federal and state taxable income, though they do not reduce FICA under modern plans. Health insurance premiums under a Section 125 plan reduce federal, state, and FICA taxable wages. HSA contributions reduce all three when paired with a qualifying high-deductible health plan. The stacking order matters because each layer interacts with the standard deduction and the marginal bracket.

For 2026, a $24,500 elective deferral plus a $4,400 catch-up (age 50+) plus a $4,300 HSA contribution reduces taxable income by $33,200 for a single filer in the 22% federal bracket. Federal savings alone is about $7,300 per year. Add state tax savings where applicable and the total approaches $9,000. The Retirement Contribution Stack guide has the full math.

Plan B: time income across years

Workers with variable income — freelancers, commissioned sales, business owners — can use retirement contributions to smooth out tax brackets. A high-income year followed by a low-income year is a chance to convert a Traditional IRA to a Roth IRA in the low year, paying tax at a lower marginal rate. The reverse move — Roth contributions in high years and withdrawals in low years — is a similar strategy for Roth 401(k) participants.

These strategies have eligibility rules and contribution limits. They are not available to high-income W-2 workers with stable salaries. Use them when the income volatility is real, and confirm the rules with a tax professional before relying on the strategy for any specific year.

Plan C: position for the OBBBA deductions

Between 2025 and 2028, eligible workers with tips, overtime, or senior income can claim a federal deduction on Schedule 1-A. The deduction reduces federal taxable income only — FICA and state tax are unchanged. For workers near the MAGI phaseout, timing matters: a one-year delay of a bonus or a Roth conversion can preserve eligibility.

The OBBBA guide covers the eligibility rules and the MAGI thresholds. The Tax Estimator supports a Schedule 1-A comparison for tips and overtime so a worker can model the after-tax effect of these deductions for the current tax year.

US Tax Questions

Sources and Methodology

Every federal number on this pillar comes from IRS publications: Rev. Proc. 2025-32 for the 2026 inflation adjustments, Publication 15-T for withholding, Notice 2025-69 for 2025 transition methods on the OBBBA tips and overtime deductions, and the enacted text of Public Law 119-21.

• IRS Working Families Tax Cuts (OBBBA landing)
• IRS Rev. Proc. 2025-32 (2026 inflation adjustments)
• IRS Publication 15-T
• SSA Contribution and Benefit Base
• Public Law 119-21 (OBBBA enacted text)

SalaryLab references IRS and state revenue department sources directly. State-specific interpretations may evolve. Confirm local conformity with your state revenue department before filing.

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