How to Calculate Net Pay for a Salary
It always seems to be a shock when you get your first paycheck and see how much you thought you would be getting versus how much you actually get. The larger amount is called your "gross pay" and what you actually end up with is called your "net pay." To calculate net pay you need to subtract federal axes withheld, state taxes withheld, Social Security, FICA, Medicare, and any voluntary deductions like retirement.
Other People Are Reading
-
Calculating Taxes
-
The first and often largest deduction from your paycheck goes to "Uncle Sam" in the form of Federal Tax Withholdings. These vary from person to person depending on your marital status and the number of exemptions you claimed on the W-4 form you filed with your employer. You can use the Internal Revenue Service's, IRS, most recent 2010 tables to estimate your tax withholdings. For instance, a single person earning $500 a week with one withholding would pay $44 in federal taxes or 8.8 percent, subtract this result from your gross pay.
Estimating Your State Income Tax
-
Estimating state taxes is a bit more difficult because every state is different. Some states like Florida and Texas don't have state income taxes while others like New Jersey can be as high as 10.75 percent, depending upon your income. You may need to contact your employer or state tax department to locate the tax table for your state. State tax withholding must also be subtracted from your gross income.
-
Social Security
-
Calculating Social Security is easier because it is a fixed percentage paid half by your employer and half deducted from your salary. The current 2010 employee withholding rate for Social Security is 6.2 percent. This is often called FICA, but may also be called Social Security's Old-Age, Survivors and Disability Insurance, OASDI. Earnings above $106,800 are exempt from Social Security taxes. Subtract 6.2 percent of your gross pay from your paycheck.
Medicare
-
Beginning in 1966, in addition to all the other taxes the government began withholding income for Medicare. It started small at only 0.35 percent but was raised the next year to 1/2 percent. Then in 1978 it went to one percent and now, in 2010, it is 1.45 percent for both the employer and the employee. So subtract another 1.45 percent of your gross income for Medicare.
The Result
-
The total tax bite can be steep with 8.8 percent for federal taxes plus 6.2 percent for Social Security, 1.45 percent for Medicare -- you are already at 16.45 percent and that is before state taxes are added. To get a closer approximation, with individual state taxes included into the equation, you might try using one of the many paycheck calculators. A good one that helps also determine your state taxes is available from Pay Check City.
-
References
Resources
- Photo Credit Matt Antonino/Hemera/Getty Images
