Final answer:
The withholding for federal and state income tax is primarily based on an individual's adjusted gross income. Deductions like the standard or itemized deductions can reduce taxable income. Federal income tax withholding includes contributions to social insurance and retirement programs, while state systems vary and can include local income taxes.
Step-by-step explanation:
Tax withholding for federal and state income tax is determined by several factors. The primary basis for these taxes are an individual's adjusted gross income, which includes wages, interest income, and in some cases, unemployment compensation. Additionally, taxpayers can reduce their taxable income through deductions such as the standard deduction, personal exemptions, or itemized deductions for specific expenses like home mortgage interest or property taxes.
For the federal income tax, which is the largest single source of federal government revenue, the tax code specifies how to calculate taxes owed. This involves a sliding scale, where the tax rates increase progressively with income levels. Withholding of taxes at the federal level also accounts for payments toward social insurance and retirement programs like Social Security and Medicare, which represent a significant portion of federal revenue.
State taxation systems, while similar, vary widely among jurisdictions, and some states even impose additional local income taxes. These state and local taxes are generally deductible on federal tax returns, provided taxpayers itemize their deductions.