How to Calculate Monthly Income Tax

Figuring your taxes before you get your paycheck can help you establish a budget.

Figuring your taxes before you get your paycheck can help you establish a budget.

When you’re paid once a month, it’s extremely important to create a budget and stick to it. Unless you have other sources of income, making the money last the entire month might seem almost impossible. Using the resources available on the Internal Revenue Service website, you can calculate how much your take-home pay will be long before you get your paycheck. This way, you can plan where to spend the money and know exactly how much you can put away for a rainy day.

Talk to your employer’s human resources department about your withholding allowances. When you first began working for your employer, you filled out a Form W-4. You selected a withholding rate and a specific number of allowances, which your employer uses to calculate your taxes. Find whether you are withholding at a single or married rate and the number of allowances you claimed.

Download Circular E from the IRS website. Circular E is the form your boss uses to figure your tax withholdings, which includes Social Security, Medicare and federal income taxes.

Multiply your hourly wage by the hours you plan to work in the month, and write the number down. For example, if you earn $15 an hour and expect to work 172 hours, your gross pay is $2,580 ($15 X 172). Don’t forget to include overtime, which is typically 1.5 time your regular hourly wage for hours worked over 40 in a single week. If you’re paid salary, write your gross salary down.

Look through Circular E and find the current Social Security and Medicare tax rates. As of 2012, the Social Security tax is 4.2 percent of your gross pay and Medicare is 1.45 percent.

Calculate your Social Security and Medicare taxes. Using the last example, if your gross pay is $2,580, your Social Security tax is $108.36 ($2,580 X .042) and your Medicare tax is $37.41 ($2,580 X .0145). Write both of these numbers down.

Subtract any pretax withholdings from your gross income, which can include contributions to retirement or insurance premiums. For more information on your pretax withholdings, ask your employer’s human resource department. Using the last example, if you contribute $150 to a qualified retirement plan every month, your leftover earnings are $2,430 ($2,580 - $150).

Skim through Circular E and find the Percentage Method Table, which lists the preset withholding allowance amounts. A withholding allowance amount is a part of your income that the IRS ignores for each allowance you claim. For example, for the 2012 tax year, the withholding allowance for taxpayers who are paid once a month is $316.67 per allowance.

Multiply the withholding allowance amount by the number of allowances that you claimed on Form W-4. For example, if you are single and claim two allowances, your allowance amount is $633.34 ($316.67 X 2).

Subtract the withholding allowance amount from the remainder of your earnings to find your taxable income. Using the last example, your taxable income is $1,796.66 ($2,430 - $633.34).

Locate the monthly Percentage Method Table in Circular E. Match your taxable income to find your tax percentage. If you claimed single on your W-4, use the left column. If you claimed married, use the right column. Using the last example, if you are single and have $1,796.66 in taxable income, your tax rate is $72.50 plus 15 percent over $904.

Calculate your tax. Using the last example, your base tax is $72.50, but you also have to pay 15 percent of any taxable income over $904. This means you have to pay a 15 percent tax on $892.66 ($1,796.66 – 904). Your additional tax is $133.90 ($892.66 X .15) plus the $72.50 base rate, for a total tax of $206.40 ($133.90 + $72.50).

Calculate your total monthly income tax. Income taxes include your Social Security, Medicare and federal income tax. Using the last example, if your Social Security tax is $108.36, your Medicare tax is $37.41 and your federal tax is $206.40, your total income tax is $352.17.


  • Don’t forget to calculate your state taxes. For more information on state tax rates, refer to your state’s department of revenue website.
  • Social Security taxes are only taxed on the first $110,100 of your income as of 2012.

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.

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