Learn about how FICO taxes, retirement contributions, and other paycheck reducers explain the difference between your salary and the actual amount you take home.
What You Need To Calculate Your Take-Home Pay
Want to know what your paycheck will look like before you take a job? There is a way to figure out exactly how much you’ll have left after FICA, federal taxes, state taxes, and any other applicable deductions are removed. You need a few pieces of information in order to calculate your take-home pay:
The amount of your gross pay. If you earn a fixed salary, this is easy to figure out. Just divide the annual amount by the number of periods each year. If you are paid hourly, multiply that rate by 40 hours to determine your weekly pay. Your number of personal exemptions. When you start a new job, you fill out a W-4 form to tell your employer how much to withhold from your check. Your tax filing status. There are standard federal and state tax deductions that vary depending on whether you are single, married filing jointly, married filing separately, head of household, or a surviving spouse. Other payroll deductions. This category could include contributions to a 401(k) retirement plan, health insurance, life insurance, or a flexible spending account for medical expenses. It also may include union dues or any other garnishments that are taken from your wages. It helps to categorize these according to pre-tax and after-tax contributions, to deduct them from either your gross salary or after-tax calculation.
How To Calculate Your Taxable Income
There are two steps to calculating your income. First, account for FICA taxes, and then subtract your standard deduction.
How To Calculate FICA Withholding
Your FICA taxes represent your contribution to Social Security and Medicare programs. Everyone pays a flat, 7.65% rate on the first $147,000 they earn in 2022 (rising to 160,200 in 2023). You can reduce the amount of your annual gross pay by this percentage before making other calculations. Employers pay half of your FICA taxes, so self-employed individuals must pay the entire 15.3%.
How Much Is the Standard Deduction?
Next, subtract your standard deduction. For taxpayers who are single or married filing separately, the standard deduction is $12,950 in 2022. For those who are married and filing jointly, the standard deduction is $25,900 in 2022. Heads of households have a standard deduction of $19,400 in 2022. The resulting number should be very close to your taxable income. This is the total that will be used to determine your federal and state tax brackets.
Calculating Income Taxes
Several taxes apply to your gross pay, including federal, state, and local income taxes. The amount of federal tax you pay will depend on your filing status and bracket. The federal income tax rate ranges from 10% to 37%. Note that the IRS tax brackets are marginal, which means you pay different percentages for different income amounts. For instance, if you are a single filer and have income of $60,000 (after the standard deduction), you would owe 10% on the first $10,275; 12% on the amount from $10,276-$41,775; and 22% on the amount from $41,776 to $60,00. That’s a lot to calculate, but you can plug your income into an effective tax calculator, which does all the math for you, for an estimate. Add together your federal, state, and other income taxes, and this is the amount that will be deducted from your paychecks over the course of the year.
Other After-Tax Payroll Deductions
Again, remember also to subtract any other relevant deductions. Depending on whether they are pre-tax or after-tax deductions, you can deduct them from your salary before or after calculating income tax due. For example, a 401(k) retirement plan is pre-tax, so if you contribute 6% of your salary, take that amount from your gross salary before calculating your taxes. Health insurance premiums paid by you are also typically taken from gross pay before taxes are taken out. For union dues and other garnishments, you can verify whether they are taken out before or after tax or use estimates for those figures.
Final Calculations
To determine the total amount of money deducted from your paychecks, add up the amounts you’ve calculated for FICA taxes, income taxes, and other deductions, then subtract that total amount from your annual gross pay. What’s left is your net pay. Divide both your total deductions and your net pay by the number of pay periods for the year to determine how much those amounts will be per paycheck. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
