Pay stubs often look like itemized receipts. First, there's the amount of money you earned during that pay period, followed by one or more deductions. The final total shows what you ultimately deposit in your bank account. The difference between your initial income and final deposit may leave you wondering exactly what percentage is withheld for tax purposes.
The answer depends on two main factors: How much money you make and your marital status. Your employer uses form W-4 to determine how much income tax to withhold, and this form does give you some control over how much or how little is withheld. If too much money was withheld, you'll receive an income tax refund after filing your taxes the following spring.
TL;DR (Too Long; Didn't Read)
By using the tax bracket information provided by the IRS, you can calculate how much of your salary will go to taxes.
About Tax Brackets
Income tax percentages for single filers are delineated accordingly: 10 percent withheld for incomes between $0 and $9,525; 12 percent withheld for incomes between $9,526 and $38,700; 22 percent withheld for incomes between $38,701 and $82,500; 24 percent withheld for incomes between $82,501 and $157,500; 32 percent withheld for incomes between $157,501 and $200,000; 35 percent withheld for incomes between $200,001 and $500,000; and 37 percent withheld for incomes greater than or equal to $500,001.
The income for each tax bracket is more or less doubled when a married couple files jointly: 10 percent withheld for incomes between $0 and $19,050; 12 percent withheld for incomes between $19,051 and $77,400; 22 percent withheld for incomes between $77,401 and $165,000; 24 percent withheld for incomes between $165,001 and $315,000; 32 percent for incomes between $315,001 and $400,000; 35 percent for incomes between $400,001 and $600,000; and 37 percent withheld for incomes greater than or equal to $600,001.
Understanding Standard Deductions
Standard deductions represent an amount that is subtracted from your income before a tax rate is applied. Before looking at the above tax brackets, subtract either $12,000 (for single filers) or $24,000 (for married filers) from your income. Use this amount to determine your tax bracket.
The Self-Employment Tax
If you're self-employed, keep in mind a special tax called the self-employment tax. All businesses pay tax into Social Security and Medicare benefits. When you run your own business, even if you're the only employee or do not have an incorporated business, you must pay these taxes as well. This is taken care of through the self-employment tax, which is filed through Form 1040, Schedule SE. The self-employment tax adds 15.3 percent to your tax bracket.
Other Items to Consider
Because so many factors influence the final amount of tax owed (including whether you have any children or other family members dependent on your income, whether you pay into an IRA fund, whether you get income from other sources, etc.) use tax brackets as guidelines or speak to your company's human resource department for more specific information.
Cathy Habas has been interested in personal finance from the age of 12, when she started doing odd jobs and saving money. Cathy also understands first-hand the unique financial concerns of non-profits and self-employed individuals. Her finance articles have appeared on sites like The Lending Mag, Len Penzo, and Business and Finance, among others.