How TakeHome IQ Calculates Your Paycheck

TakeHome IQ calculates withholding the way payroll software does. The federal piece follows IRS Publication 15-T, Worksheet 1A, line by line. FICA respects the Social Security wage base and the Additional Medicare threshold. State withholding follows each state’s own published guide. This page describes the method. Every number the app produces ultimately traces to one of the sources cited at the bottom.

The Cash Flow

Every paycheck calculation walks the same path:

1. Start with gross pay for the period.
2. Subtract pre-tax deductions that reduce taxable wages (traditional 401(k), HSA, Section 125 health premiums).
3. Compute federal income tax withholding on what’s left.
4. Compute FICA (Social Security + Medicare) on a separate taxable base, since some pre-tax deductions reduce federal tax but not FICA.
5. Compute state and local taxes on a state-specific taxable base.
6. Subtract after-tax deductions (Roth 401(k), garnishments, post-tax items).
7. What remains is net pay.

The order matters. A pre-tax deduction reduces the wage base before tax is calculated, so a $200 traditional 401(k) contribution lowers your federal taxable wages by $200. A $200 Roth 401(k) contribution does not, because Roth contributions are taken after tax. The money leaves your check either way; the tax treatment is what differs.

Federal Income Tax Withholding

Federal withholding follows IRS Publication 15-T, Worksheet 1A — the worksheet designed for the post-2020 W-4 form. The worksheet has six steps:

1. Annualize wages. Multiply your taxable wages this period by the number of pay periods per year (52 weekly, 26 biweekly, 24 semimonthly, 12 monthly).
2. Add W-4 Step 4(a) other income (interest, dividends, etc. you elected to have withheld against).
3. Subtract W-4 Step 4(b) deductions (itemized deductions you expect to claim).
4. Subtract the standard deduction for your filing status. If your W-4 Step 2 box is checked — signaling you have multiple jobs — the standard deduction is set to zero so it isn’t applied across each job’s withholding independently.
5. Look up the tax on the result using the annual tax bracket for your filing status, then divide by the number of pay periods.
6. Subtract the dependent credit from W-4 Step 3 (also divided by pay periods), and add any extra withholding from W-4 Step 4(c).

That last per-period number is what comes out of your paycheck. We do not approximate it or substitute a flat percentage — we run the actual worksheet. The audit trail in the app shows each step and its numeric result.

FICA: Social Security and Medicare

FICA is two separate taxes calculated on their own taxable base, which can differ from the federal income tax base because some deductions exempt federal income tax but not FICA (Roth 401(k) is one).

• Social Security: 6.2% of wages, capped at the annual Social Security wage base ($184,500 in 2026). Year-to-date matters here — once your YTD Social Security wages cross the cap, no more Social Security tax is withheld for the rest of the year.
• Medicare: 1.45% of all wages, no cap.
• Additional Medicare: 0.9% of wages above $200,000 YTD. This kicks in mid-year for high earners and continues until year-end.

TakeHome IQ tracks YTD Social Security wages and Medicare wages independently when you provide them, so the cap and the Additional Medicare threshold apply at the right paycheck. Without YTD inputs, the app assumes you have not yet hit the caps — which is right for most workers most of the year.

Supplemental Wages: Bonuses, Commissions, Severance

Bonuses, commissions, severance, retroactive pay, and similar one-time payments aresupplemental wages. The IRS allows two methods:

• Flat 22% rate. Eligible when supplemental wages are identified separately from regular wages on the same paycheck. This is the most common method for bonuses paid alongside a regular paycheck.
• Aggregate method. The supplemental amount is combined with the regular paycheck, federal tax is calculated on the combined total using Worksheet 1A, and the tax already withheld on the regular paycheck is subtracted. This is used when the supplemental payment is not separately identified or when the bonus is paid on its own.

A mandatory 37% rate applies to supplemental wages exceeding $1 million in a calendar year — the same top federal bracket. TakeHome IQ tracks calendar-year supplemental wages when you enter them so the threshold applies correctly.

Deductions: How Tax Treatment Drives the Math

Every deduction has a tax treatment that determines which taxable wage bases it reduces. Getting this right matters — the difference between the two pre-tax categories below is whether FICA gets calculated on your contribution or not, which is roughly the difference between $50 and $200 of impact on a typical $200 deduction.

• Exempt from federal, state, and FICA (true triple tax-advantaged): HSA, Healthcare FSA, Dependent Care FSA, commuter transit and parking benefits, and Section 125 cafeteria-plan premiums (medical, dental, vision, group term life, short-term and long-term disability, accident, critical illness, hospital indemnity). These reduce every taxable wage base.
• Exempt from federal and state, but NOT FICA: Traditional 401(k), Traditional 403(b), 457(b) plans. These elective deferrals reduce your federal and state taxable wages but FICA is still calculated on your full gross. Many people are surprised by this — you do pay Social Security and Medicare on the dollars you contribute to a Traditional 401(k).
• Taxable (after-tax): Roth 401(k), Roth 403(b), 401(k) loan repayments, supplemental life insurance, pet insurance, union dues, garnishments, child support, student loan, charitable contributions. These come out of net pay and do not reduce any taxable wage base.

Both Traditional and Roth 401(k) are calculated as a percentage of grosscompensation, because both are elective deferrals from compensation under IRC § 401(k). The tax treatment is what differs: a Traditional contribution reduces your federal and state taxable wages (but not FICA); a Roth contribution reduces no taxable wage base.

State and Local Withholding

Each U.S. state with an income tax publishes its own withholding guide. We follow each state’s published method, including:

• Bracket-based annual withholding (most states — CA, NY, IL, others)
• Flat-rate withholding (a few states use a single percentage)
• State allowance amounts and personal exemptions where the state still uses them
• State-specific add-ons: California SDI, New Jersey SDI / FLI / SUI, New York SDI / PFL, Washington Cares Fund, Pennsylvania local Earned Income Tax, Ohio school district tax
• Reciprocity agreements between states (e.g., NJ resident working in PA)

States that don’t levy an income tax (FL, TX, WA, TN, NV, SD, WY, NH, AK) skip the state withholding step entirely. State coverage is expanding — if your state isn’t fully supported yet, the app tells you so explicitly rather than guessing.

What TakeHome IQ Doesn’t Model

TakeHome IQ is a paycheck calculator, not a tax filing tool. There are real things we deliberately don’t calculate:

• Year-end refunds or amounts owed. Withholding is an estimate of your annual tax; your actual tax is calculated on your return when you account for all income, deductions, and credits across the full year.
• Investment income, business income, capital gains. These don’t flow through W-2 paychecks.
• Quarterly estimated taxes for self-employment or 1099 income.
• State tax credits (e.g., earned income credits) that apply at filing time, not at withholding time.

If a number in your paycheck doesn’t match what TakeHome IQ shows, the most likely causes are: a deduction’s tax treatment is set differently than the app assumes, your YTD inputs are stale, or your employer is using a different supplemental wage method. Open the audit trail and walk through the steps — the mismatch will be at one of those points.

Sources

• IRS Publication 15-T — Federal Income Tax Withholding Methods (Worksheet 1A is the core federal withholding calculation)
• IRS Publication 15 — Employer’s Tax Guide (Circular E) (FICA rates, supplemental wage rules, deposit requirements)
• IRS Form W-4 — Employee’s Withholding Certificate (the form this calculation expects as input)
• SSA Contribution and Benefit Base (annual Social Security wage base; 2026 is $184,500)
• State withholding guides are linked from each state’s paycheck page on this site.

Last verified: 2026-05-08. Tax data is reviewed each January when the IRS and state DORs publish updated tables for the new tax year.