How to Calculate Taxes From Your Paycheck in NY
Understand how paycheck taxes are calculated in NY, including withholding, deductions, and local taxes, to better manage your take-home pay.
Understanding how much of your paycheck goes to taxes helps with budgeting and prevents surprises at tax time. New York has federal, state, and sometimes local taxes that affect take-home pay.
Estimating paycheck deductions accurately requires considering where you live, how often you’re paid, and pre-tax deductions.
State vs. Federal Withholding
Taxes deducted from paychecks in New York come from both federal and state obligations, each with distinct rules. Federal withholding is based on IRS tax brackets and W-4 form selections, which determine how much income tax is taken out. The more allowances or exemptions claimed, the less is withheld. The IRS uses a progressive tax system, with rates ranging from 10% to 37% in 2024.
New York State also has a progressive tax structure but with different brackets and rates. As of 2024, rates range from 4% to 10.9%, with the highest rate applying to incomes over $25 million. Unlike federal withholding, New York does not allow personal exemptions, meaning more income is subject to tax. The state requires a separate withholding form, the IT-2104, similar to the W-4 but specific to New York’s system.
Both federal and state governments require payroll taxes, including Social Security and Medicare. Social Security is 6.2% (up to a wage base of $168,600 in 2024), and Medicare is 1.45%, with an additional 0.9% Medicare tax on earnings above $200,000. These taxes are mandatory regardless of withholding selections.
Local Tax Considerations
Where you live in New York affects paycheck deductions, as some localities impose additional income taxes. New York City and Yonkers are the only municipalities in the state with local income taxes.
New York City’s income tax is progressive, with rates from 3.078% to 3.876% in 2024. This tax applies to all residents, regardless of where they work. For example, Brooklyn residents working in Long Island still owe NYC income tax. Unlike state and federal taxes, NYC’s withholding does not allow for standard deductions or personal exemptions, meaning the full taxable income is subject to these rates.
Yonkers applies a resident income tax surcharge of 16.75% on the amount of New York State tax owed. Instead of taxing income directly, Yonkers calculates its tax as a percentage of state tax liability. Non-residents working in Yonkers face a 0.5% earnings tax, withheld by employers.
Residents outside these areas do not have local income tax withheld, though property and sales taxes vary by county. Westchester and Nassau counties, for instance, have some of the highest property tax rates in the country, increasing housing costs and affecting overall financial burdens.
Pay Frequency Impact
How often you get paid affects how withholdings are calculated, leading to variations in take-home pay. Common pay frequencies in New York include weekly, biweekly, semimonthly, and monthly. Employers use IRS and state withholding tables that break down annual tax liabilities into smaller increments based on pay frequency.
For those paid weekly or biweekly, withholding assumes a consistent income throughout the year. However, fluctuating earnings from overtime, commissions, or bonuses can result in higher withholding during peak earning periods. Payroll systems apply tax rates as if each paycheck represents a typical pay period, temporarily pushing taxable wages into higher brackets. While this evens out over the year, it can cause short-term discrepancies.
Semimonthly and monthly pay schedules generally result in slightly larger individual paychecks since salaries are split into fewer periods. These schedules may lead to minor differences in withholding calculations due to rounding adjustments. Employees paid less frequently need to budget carefully to manage longer gaps between paydays.
Deductions Affecting Taxable Income
Pre-tax deductions reduce taxable income and, in turn, the amount withheld for taxes. Employer-sponsored retirement plans, such as 401(k) and 403(b) accounts, allow pre-tax contributions, lowering taxable wages. For 2024, employees can contribute up to $23,000 ($30,500 if age 50 or older). New York follows federal rules in excluding these contributions from state taxable income, but they remain subject to Social Security and Medicare taxes.
Health-related deductions also impact taxable wages. Contributions to employer-sponsored health insurance, flexible spending accounts (FSAs), and health savings accounts (HSAs) are typically taken out pre-tax. HSAs offer triple tax benefits: contributions reduce taxable income, growth is tax-free, and withdrawals for qualified expenses are not taxed. For 2024, individuals can contribute up to $4,150 ($8,300 for families), with an additional $1,000 allowed for those 55 and older.
Union dues, commuter benefits, and certain educational assistance programs may also lower taxable income. Under IRS rules, employees can exclude up to $315 per month in employer-provided transit and parking benefits. Additionally, up to $5,250 in employer-paid tuition assistance is tax-free annually.
Methods to Review Paycheck Accuracy
Ensuring the correct amount is withheld requires reviewing tax withholdings, deductions, and employer contributions. Payroll errors can lead to underpayment or overpayment of taxes, potentially resulting in unexpected tax bills or reduced take-home pay. Regularly checking pay stubs helps catch discrepancies before they become larger financial issues.
Comparing paycheck details with IRS and New York State withholding calculators helps verify accuracy. The IRS provides a Tax Withholding Estimator, where employees can input earnings, deductions, and filing status to estimate tax liability. New York State offers a similar tool. If estimated tax liability differs significantly from actual withholdings, adjustments may be needed by updating W-4 or IT-2104 forms. Employees receiving bonuses or commissions should also check whether supplemental income is taxed correctly, as employers often apply a flat 22% federal withholding rate on bonuses, which may not align with overall tax brackets.
Reviewing employer contributions to benefits like retirement plans and health insurance ensures deductions are applied correctly. Errors in pre-tax deductions can impact taxable income and Social Security earnings records, which may affect future benefits. Employees should also verify that voluntary deductions, such as wage garnishments or loan repayments, are processed correctly. If discrepancies arise, contacting the payroll department promptly can help resolve issues before year-end tax filings.