How to Calculate Your Paycheck After Retirement Deduction

Your employer deducts your contributions to your retirement plan from your paychecks, and forwards the payments to the plan provider. But if your employer doesn’t do the calculation properly, it may affect your take-home pay and the funding of your retirement account. Retirement deductions depend on whether your contributions are pretax or after-tax. If they’re pretax, only some of your wages might be subject to taxation when you make your contributions. If they’re after-tax, all of your wages are taxed.

Step 1

Determine gross earnings for the pay period; this is your entire compensation before deductions. For example, let's say you earn $1,200 biweekly.

Step 2

Calculate your retirement deduction from gross pay. Assume that you elect 5 percent toward your 401(k) plan. Multiply $1,200 by .05, which comes to $60.

Step 3

Deduct retirement deduction from gross pay before calculating federal income tax if the plan is pretax. For example, subtract $60 from $1,200 to get $1,140. To determine federal income tax, apply the filing status and allowances you put on your W-4 form and Internal Revenue Service Circular E tax tables. (As an example, assume you claim married and two allowances on your W-4 form. Page 44 of the 2012 Circular E says you would pay $55 in federal income tax.)

Step 4

Subtract applicable state and local income taxes based on the revenue agency’s rules. Most state and local governments follow federal procedures. If so, your wages of $1,140 would be subject to state and local taxes. If not, your entire wages of $1,200 would be taxed.

Step 5

Figure Social Security tax at 4.2 percent of taxable wages up to $110,100 for the year, and Medicare tax at 1.45 percent of all taxable wages, as of 2012. Pretax retirement plans are subject to these two taxes, so your entire pay of $1,200 would be taxed.

Step 6

Calculate taxes on your entire gross pay if the retirement plan is after-tax. For example, $60 would go toward your after-tax retirement account, and your entire earnings of $1,200 would be subject to all taxes.

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