How Much Taxes Are Deducted From a Paycheck in Maryland?

A paycheck is not simply a reflection of gross earnings; it includes various mandatory deductions that reduce the net amount received. Navigating these deductions can seem complex, but grasping the fundamentals of federal, state, and local withholdings provides clarity on how take-home pay is determined, offering insights specific to Maryland residents.

Types of Paycheck Deductions

Several types of taxes are withheld from an employee’s gross pay before they receive their net wages. These deductions fund various government programs and services at federal, state, and local levels. Understanding each category helps clarify where portions of earned income are directed.

Federal income tax is withheld based on federal tax laws and a progressive tax system. Income is taxed at increasing rates, ranging from 10% to 37% for 2024, depending on income level and filing status. Employers submit these withheld amounts to the Internal Revenue Service (IRS) on the employee’s behalf.

Federal Insurance Contributions Act (FICA) taxes contribute to Social Security and Medicare programs. For 2024, the Social Security tax rate is 6.2% on earnings up to a wage base limit of $168,600, while the Medicare tax rate is 1.45% on all taxable wages with no wage base limit. Employers are required to match these FICA contributions. An extra 0.9% Medicare tax applies to wages exceeding $200,000 for employees, for which employers do not have a matching contribution.

Maryland imposes a state income tax with rates ranging from 2% to 5.75% for the 2024 tax year. This state tax applies to income earned within Maryland. Many Maryland jurisdictions also levy their own local income taxes, collected in addition to the state income tax. These local rates vary significantly by county or Baltimore City, ranging from 2.25% to 3.2% for 2024.

How Withholding Amounts Are Determined

The amount of tax withheld from a paycheck is calculated based on an employee’s gross taxable wages and specific elections. Gross pay, the total earnings before any deductions, serves as the foundation for these calculations. Various factors and forms influence how much federal, state, and local tax is deducted.

The federal Form W-4, Employee’s Withholding Certificate, informs employers of an employee’s tax situation. This form allows individuals to indicate their marital status, number of dependents, and any other income or deductions that might affect federal withholding. Completing Form W-4 helps ensure the correct amount of federal income tax is withheld, avoiding overpaying or underpaying taxes. The IRS Tax Withholding Estimator can assist in accurately completing this form.

For Maryland state and local income taxes, employees complete Form MW507, Employee’s Maryland Withholding Exemption Certificate. This form communicates withholding preferences to employers for state and local taxes, similar to the federal W-4. Inputs on Form MW507, such as personal and dependent exemptions and any additional withholding amounts, influence Maryland state and local tax deductions. Employers use information from both the W-4 and MW507 forms to determine withholding amounts.

Certain pre-tax deductions can reduce an employee’s taxable income, lowering the amount of taxes withheld. These include contributions to health insurance premiums, 401(k) retirement plans, or Flexible Spending Accounts (FSAs). Withholding amounts are an estimate based on projected annual income and the applicable federal, state, and local tax brackets and rates.

Decoding Your Pay Stub

A pay stub provides a detailed breakdown of an employee’s earnings and deductions for a specific pay period. Interpreting this information helps verify the accuracy of tax withholdings. Pay stubs feature sections that summarize financial activity.

Common sections on a pay stub include employee identification, pay period details, gross wages earned, a list of deductions, and net pay. Within the deductions section, various tax withholdings are itemized. Federal Income Tax is labeled as “FIT” or “FWT.” Social Security deductions appear as “SS” or “OASDI,” while Medicare taxes are listed as “MED” or “HI.”

Maryland State Tax deductions are identified as “MD SIT” or “MD SWT.” Local income taxes are shown by the county name or abbreviation, such as “PG County Tax” for Prince George’s County or “BCIT” for Baltimore City income tax. This labeling allows employees to distinguish between the types of taxes withheld.

Pay stubs present two figures for each deduction: “Current” and “Year-to-Date” (YTD). The “Current” amount reflects the deduction for the specific pay period. The “Year-to-Date” amount represents the cumulative total from the beginning of the calendar year. Regularly reviewing current and YTD figures helps employees monitor withholdings and ensure deductions are correctly applied.

Adjusting Your Withholding

Life events and changes in financial circumstances necessitate adjustments to tax withholding to prevent overpayment or underpayment. Common reasons to adjust withholding include getting married, having a child, taking on a second job, or experiencing a significant income change. Making these adjustments helps align the amount withheld with an individual’s actual tax liability.

Individuals can use the IRS Tax Withholding Estimator, available on IRS.gov, to determine the amount of federal tax to withhold. This online tool helps calculate allowances or additional withholding amounts based on an individual’s financial situation. The Comptroller of Maryland’s website provides tools to calculate state and local withholding. These estimators help understand how different withholding scenarios impact net pay and tax refunds or balances due.

Once adjustments are determined, employees must submit updated forms to their employer. For federal tax withholding, an updated Form W-4 must be submitted. For Maryland state and local taxes, a revised Form MW507 must be submitted. Employers use these forms to modify tax deductions from subsequent paychecks.

After submitting updated forms, review the first few pay stubs to confirm changes are implemented. This helps ensure adjusted withholding is correct and the employee meets tax obligations without surprises. Regularly checking and adjusting withholding, especially after major life changes, is effective financial management.