Work and tax in the US — payroll, federal vs state, and the basics that matter
American working life runs on a federal-plus-state tax system, paycheck withholding (W-4) instead of separate filings, and an annual Form 1040 every spring. Here is what a paystub means, when to file, and the things newcomers most often get wrong.
Last updated:
- Tax year
- Calendar year — January to December
- Federal tax filing deadline
- April 15 (or next business day)
- Federal minimum wage
- $7.25/hour (state minimums often higher)
- No statutory paid leave
- Federally — paid leave is by employer or state law
W-4, paystubs, and how withholding works
Your employer asks you to fill out a Form W-4 on hire. The W-4 tells payroll how much federal income tax to withhold from each paycheck. Most newcomers should claim "single, no dependents" if that fits, then update once your situation stabilises — too little withheld means a tax bill in April; too much means you lent the IRS money interest-free.
A US paystub lists: gross pay, federal income tax, Social Security (6.2% up to a wage cap, $176,100 in 2025), Medicare (1.45% no cap, plus 0.9% additional for high earners), state income tax (where applicable), local income tax (in some cities), and any pre-tax deductions (401(k), HSA, health-insurance premiums). The remainder is your "net" or "take-home" pay.
Federal income tax brackets (2025–26)
These are marginal rates: only the dollars within each bracket are taxed at that rate. The standard deduction ($15,000 single / $30,000 married in 2025) reduces taxable income before the brackets apply — meaning a single filer earning $40,000 has taxable income of $25,000 and pays roughly $2,700 in federal tax.
On top of federal: Social Security 6.2%, Medicare 1.45%, plus state income tax (0% in TX, FL, WA, NV, TN, SD, WY, AK; 5–10%+ in CA, NY, NJ, OR, HI, MN). Combined effective rates for a typical middle-income worker land around 18–25%.
- 10% — $0–$11,925 (single) / $0–$23,850 (married filing jointly)
- 12% — $11,926–$48,475 / $23,851–$96,950
- 22% — $48,476–$103,350 / $96,951–$206,700
- 24% — $103,351–$197,300 / $206,701–$394,600
- 32% — $197,301–$250,525 / $394,601–$501,050
- 35% — $250,526–$626,350 / $501,051–$751,600
- 37% — over $626,350 / $751,601
State and local taxes vary dramatically
Nine states have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming. (New Hampshire has limited interest/dividend tax that is being phased out.) These states usually compensate with higher sales tax, property tax, or both — Texas has high property tax; Tennessee has high sales tax.
High-tax states include California (top rate 13.3%), New York (10.9%), New Jersey (10.75%), Oregon (9.9%), Hawaii (11%), Minnesota (9.85%). Some cities add their own income tax: New York City (~3.6%), Philadelphia (~3.8%), Detroit, several Ohio cities. Combined federal-plus-state-plus-city marginal rates can exceed 50% for high earners in NYC.
Property tax (paid annually on owned real estate) varies similarly: New Jersey, Illinois, New Hampshire have the highest effective rates; Hawaii, Alabama, Louisiana the lowest.
Filing your annual Form 1040
Most US workers file an annual federal tax return (Form 1040) by April 15 of the following year. Even with employer withholding, you file to reconcile — the return calculates the total tax owed for the year, subtracts what was withheld, and either refunds the difference or bills you for the shortfall.
Most simple returns are filed electronically through commercial software (TurboTax, H&R Block, FreeTaxUSA, Cash App Taxes) or, increasingly, the IRS Direct File pilot. Free filing is available to incomes under $84,000 via IRS Free File partners. Tax preparers (H&R Block, Jackson Hewitt, local CPAs) charge $200–500+ for a typical return; complex returns with self-employment, rental, or international income often justify a CPA.
Pre-tax accounts: 401(k), IRA, HSA, FSA
A 401(k) is the workplace retirement account. Contributions are pre-tax (lowering current-year taxable income); growth is tax-deferred; withdrawals after age 59½ are taxed as ordinary income. The 2026 limit is $23,500 (employees under 50) plus a $7,500 catch-up at 50+. Most employers match part of your contribution — at minimum, contribute enough to get the full match.
IRAs (traditional and Roth) are individual retirement accounts you open at any broker (Fidelity, Vanguard, Schwab) outside your employer. The 2026 limit is $7,000 ($8,000 if 50+). Roth IRA contributions are after-tax; withdrawals are tax-free. Income limits cap direct Roth contributions at higher incomes; the "backdoor Roth" workaround works for most.
HSA (Health Savings Account) — paired with a high-deductible health plan. Triple-tax-advantaged: pre-tax contributions, tax-free growth, tax-free withdrawals for qualified medical expenses. The most powerful tax-advantaged account in the US tax code; max it if you have an HDHP.
FSA (Flexible Spending Account) — an employer pre-tax account for healthcare or dependent care. Use-it-or-lose-it: unused funds at year-end (with limited carryover) are forfeited. Estimate carefully.
Self-employment, 1099, and quarterly estimates
Independent contractors and freelancers receive a Form 1099-NEC instead of a W-2. No taxes are withheld — you must pay them yourself, including a 15.3% self-employment tax (Social Security + Medicare combined; you pay both halves) on top of regular income tax. This is the biggest sticker-shock for new freelancers from countries with employer-paid social contributions.
The IRS expects self-employed people to pay quarterly estimated taxes (April 15, June 15, September 15, January 15). Underpayment generates an interest penalty. Aim to pay 100% of last year's total tax (110% if you earned over $150,000) across the four quarters as a safe-harbour calculation.
LLCs, S-corps, and other business structures: an LLC is the cheapest legal entity ($50–500 to register depending on state) and is taxed as a sole proprietor by default. Above ~$60–80k of profit, an S-corp election can reduce self-employment tax meaningfully — but the admin overhead (payroll, separate tax filing) is real.
Paid time off — the US patchwork
There is no federal law guaranteeing paid vacation, paid sick leave, or paid holidays in the US. Whether you get any depends on the employer and the state. Mid-to-large companies typically offer 10–20 paid days plus 5–10 paid holidays; some now have unlimited PTO policies (which evidence suggests reduces actual time taken).
Paid sick leave is mandated in 17 states and DC (California, New York, New Jersey, Washington, Massachusetts, Maryland, Connecticut, etc.) — typically 1 hour per 30–40 hours worked, capped at 40–80 hours per year. Outside those states, sick leave is at the employer's discretion.
Federal holidays close most office workplaces; retail and hospitality typically operate on holidays with extra pay or comp days. The 11 federal holidays plus a personal floating holiday and birthdays-off is a typical white-collar baseline.
Further reading
Other guides for this country
Frequently asked questions
When do I file taxes if I just arrived?
For your first US tax year, file by the April 15 following the calendar year. The dual-status return rules (part non-resident, part resident) are tricky for partial-year arrivals — most newcomers are best served by a CPA or accountant who handles international cases.
Why does my paycheck look so much smaller than my salary divided by pay periods?
Because of withholdings: federal income tax (10–37% depending on bracket), Social Security (6.2%), Medicare (1.45%), state income tax (0–13%), pre-tax deductions (401(k), HSA, health-insurance premiums). Combined effective withholding for a typical middle-income worker is 25–35%.
I am owed a tax refund from my home country — does the US care?
Generally not, until you become a US tax resident. Once you are a resident, the US taxes your worldwide income. You may owe US tax on foreign income but get foreign tax credits for taxes already paid abroad. This is the FBAR/FATCA reporting territory — file Form 8938 and FinCEN 114 if you have foreign accounts above the thresholds.
Should I always max my 401(k)?
Always at least to the employer match — that is free money, often a 50–100% return on your own contribution. Beyond the match, the answer depends on your tax bracket, current emergency fund, and high-interest debt. A common stack: match → emergency fund → high-interest debt payoff → HSA → Roth IRA → back to 401(k) max.