How to Calculate Federal Taxes on Gross Pay

Each time you receive a paycheck from your employer, your net pay, or take-home pay, differs significantly from your gross pay. The Internal Revenue Service requires your employer to withhold a certain amount from your paycheck to cover your federal income taxes, which is determined by the number of allowances claimed on Form W-4. To establish whether your employer is withholding enough taxes to cover your bill, it’s important to calculate your federal taxes. If your taxes won’t cover the bill, adjust your allowances on Form W-4.

Visit the IRS website and obtain Publication 15.

Multiply the number of hours you worked in the pay period by your hourly wage to determine your regular earnings per week. For example, if you worked 40 hours and your hourly wage is $30, your regular earnings are $1,200 (40 X 30) per week.

Calculate your overtime earnings, if applicable. Overtime is generally 1.5 times your normal hourly rate for hours over 40 in a week. If you worked 45 hours in one week and earn $30 an hour, your overtime rate is $45 (30 X 1.5) and your overtime earnings are $225 (45 X 5).

Add your overtime earnings to your regular earnings to determine your gross pay per week. For example, if your regular earnings are $1,200 and your overtime earnings are $225, your gross pay is $1,425 (1,200 + 225).

Subtract your pretax withholdings from your gross pay. Pretax withholdings can include insurance premiums and contributions to a retirement plan. If your insurance premiums are $45 and your contributions to retirement are $60, your total pretax withholdings are $105 (45 + 60). Using the previous example, your remaining earnings are $1,320 (1425 - 105).

Refer to IRS Publication 15 to determine the current weekly withholding allowance. As of 2012, the weekly withholding allowance for the amount calculated above is $73.08.

Multiply the current weekly withholding allowance by the number of allowances claimed on W-4. If you claimed four allowances on Form W-4, your withholding allowance is $292.32 (73.08 X 4).

Subtract your withholding allowance from your remaining pay to determine your taxable income. Using the previous example, your taxable income is $1,027.68 (1,320 – 292.32).

Use the tax chart on Publication 15 to determine your federal tax. If your taxable income is $1,027.68 and you are married with four withholding allowances, your federal tax is $70.

Tips

  • To determine how many allowances you claimed on Form W-4, ask someone from your employer’s human-resources department.
  • If you are a salaried employee, you do not need to calculate your regular or overtime earnings.
  • When determining your net pay, or take-home pay, you must also determine your FICA taxes. Refer to IRS Publication 15 to determine the current FICA tax rate, which is 7.65 percent as of the 2012 tax year. Multiply your gross pay by the current FICA rate. For example, if your gross pay is $1,425, your FICA tax is $109.01 (1,425 X .0765). Subtract this number, your pretax withholdings, and federal income tax to determine your net pay.
 

About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.