As an employee, your gross salary is not the amount you take home each pay period. Your pay is subject to several types of taxes, and may be subject to certain other deductions if you participate in employer benefit programs. Calculating your salary after taxes is essential to creating your household budget and savings goals. You can use the same tools your employer uses to get an idea of what your net paycheck will be before your check is issued. With this information, you can get a jump start on your plans for bill payments and discretionary income purchases.
Calculate your gross salary for the pay period. If you’re paid a regular salary, your gross earnings should be the same each period. If you’re paid an hourly salary, multiply the number of hours you work in the period by the amount you’re paid each hour.
Subtract pre-tax deductions for benefits such as health insurance and health savings account contributions. Do not subtract contributions you make to a 401(k) or similar employer-sponsored retirement plan. The result is your gross salary subject to tax.
Multiply your gross salary subject to tax by the Medicare and Social Security combined rate percentage to calculate your Medicare and Social Security taxes. These are flat-rate taxes, and the rate is the same regardless of your gross earnings for the period. As of March, 2012, the regular combined rate prior is 7.65 (.0765) percent. Check the IRS website for details before you calculate these taxes, as this rate may change.
Subtract contributions you make to an employer-sponsored retirement plan from your gross salary subject to tax. These contributions are not subject to income tax withholding, but are subject to Social Security and Medicare taxes, so they need to be subtracted from your calculation after you figure your Social Security and Medicare tax.
Subtract your federal income tax withholding. You’ll need your W-4 withholding allowance information to perform this calculation. Your allowances may be listed on your pay stub. If your allowances aren’t listed and you’re unsure what they are, check with your employer. Download IRS Publication 15 and look at the withholding tables near the back. Find the table for your pay period frequency and marital status. Look up your taxable gross salary range and find your federal income tax withholding under the column that matches the number of allowances you claim on Form W-4.
Subtract your state income tax withholding. State income tax withholding is calculated in the same manner as federal income tax withholding. Visit your state’s Department of Revenue website and download the withholding tables from the “Employer” or “Business” section. Many companies use your federal W-4 information to process your state income tax withholding. However, if you completed a separate state W-4 form, your allowances may be different. Review your pay stub or check with your employer for verification.
- Your salary is not subject to Social Security tax after you earn more than $110,100 in a calendar year. However, your pay is always subject to Medicare tax. As of March, 2012, the individual Social Security rate is 6.2 percent, and the Medicare rate is 1.45 percent.
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