How to Calculate Taxes From a Paycheck in MD

Understanding how taxes are calculated from your earnings is an important part of personal financial management. For Maryland residents, this process involves federal, state, and local considerations, each contributing to the final amount received. Deciphering these elements helps individuals anticipate their net pay and manage their finances. This article clarifies the components that reduce gross wages, providing insight into the various withholdings that impact a paycheck.

Understanding Your Gross Pay and Taxable Income

Gross pay represents the total earnings an employee receives before any deductions are subtracted. This amount forms the basis from which all taxes and other contributions are calculated. However, the amount of income subject to taxation, known as taxable income, can be lower than gross pay due to various deductions.

Mandatory deductions, such as federal income tax, state income tax, local income tax, Social Security, and Medicare taxes, are subtracted directly from gross pay. These are non-negotiable withholdings required by law. Other deductions can further reduce the income on which taxes are levied.

Pre-tax deductions are contributions made before income taxes are calculated, lowering an individual’s taxable income. Common examples include contributions to a 401(k) retirement plan, health insurance premiums, and flexible spending account (FSA) contributions. These deductions reduce the base for federal, state, and sometimes local income taxes. In contrast, post-tax deductions, such as Roth 401(k) contributions, union dues, or wage garnishments, are taken from pay after taxes have been calculated and do not reduce taxable income.

Calculating Federal Income Tax Withholding

Federal income tax withholding is determined by information provided on IRS Form W-4, the Employee’s Withholding Certificate. This form instructs an employer on how much federal income tax to deduct from each paycheck. An employee’s choices regarding filing status, the number of dependents, and any other adjustments directly influence the withholding amount.

Employers utilize the information from the W-4 form in conjunction with IRS tax tables and specific withholding methods to calculate the appropriate deduction. The two primary methods are the wage bracket method and the percentage method. The wage bracket method involves looking up the withholding amount in tables based on pay frequency, gross pay, and W-4 information. The percentage method, often used for automated payroll systems, applies graduated tax rates to an employee’s taxable wages.

Individuals do not directly apply standard deductions or tax brackets to each paycheck. These elements are implicitly factored into the IRS withholding calculations. The aim is to withhold an amount that closely matches an individual’s actual tax liability for the year. Employees can also request additional withholding on their Form W-4 to avoid owing taxes at year-end, or adjust for other income sources not subject to withholding.

Calculating Maryland State and Local Income Tax

Maryland residents are subject to both state and local income taxes, which are withheld from paychecks. The amount of state income tax withheld is guided by Maryland Form MW507, the Employee’s Maryland Withholding Exemption Certificate. Similar to the federal W-4, this form allows employees to indicate their filing status and claim exemptions, which directly impact the state tax withholding.

Maryland operates on a graduated state income tax system, meaning different portions of income are taxed at increasing rates. For 2025, state income tax rates range from 2% on the lowest taxable income to 6.5% for the highest earners. These rates are codified in the Maryland Tax-General Article, § 10-105.

In addition to state tax, Maryland imposes a local income tax, which is levied by counties and Baltimore City. These local taxes are flat rates based on the county of residence. While the state sets a range for these rates, individual counties determine their specific rate, which can vary between approximately 2.25% and 3.3% as of July 1, 2025. Employers use the MW507 information, along with gross pay and the applicable state and local rates, to calculate the combined Maryland state and local income tax withholding.

Understanding Social Security and Medicare Taxes

Social Security and Medicare taxes, collectively known as Federal Insurance Contributions Act (FICA) taxes, are mandatory federal payroll deductions. These taxes fund federal programs that provide retirement, disability, and healthcare benefits.

For Social Security, the tax rate for employees is 6.2% of their gross wages. This tax applies only up to an annual wage base limit, which is $176,100 for 2025. Once an individual’s earnings exceed this limit within a calendar year, no further Social Security tax is withheld from additional income. The maximum Social Security tax an employee would pay in 2025 is $10,918.20.

Medicare tax is applied at a rate of 1.45% of all gross wages, with no wage base limit. An Additional Medicare Tax of 0.9% is imposed on wages exceeding certain thresholds for higher earners: $200,000 for single filers, $250,000 for those married filing jointly, and $125,000 for those married filing separately. Employers are responsible for withholding this additional tax once an employee’s wages surpass $200,000 in a calendar year.

Interpreting Your Pay Stub

A pay stub serves as a detailed record of an employee’s earnings and deductions for a specific pay period. Understanding its components helps verify that the correct amounts are being withheld. A pay stub includes gross pay, any pre-tax deductions, and the resulting taxable wages.

Individual sections on the pay stub show the amounts withheld for federal income tax, Maryland state income tax, and local income tax. Federal FICA taxes are usually listed as Social Security (often abbreviated as OASDI or SS) and Medicare (often listed as MED or HI). Individuals can roughly verify FICA deductions by ensuring they are the correct percentage of their gross pay, up to the Social Security wage base limit.

The pay stub also displays year-to-date (YTD) totals for earnings and each type of withholding. This YTD information tracks cumulative income and taxes paid throughout the year. If any discrepancies are noted or questions arise regarding the calculations, contact the employer’s payroll or human resources department for clarification.