How to Calculate Net Monthly Income From Gross Salary
It is important to understand the net income you will receive from your employer so that you can accurately budget your expenses. Gross income is the amount an employer pays you, while net income is the amount after required deductions from gross income. Another consideration you should take into account when calculating net monthly income is bonuses, such as a Christmas holiday bonus, end-of-year bonus or a one-time performance bonus. From a monthly budgeting perspective, the month in which these bonuses are received should be calculated on a net basis.
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Things You'll Need
- Federal tax tables
- State tax tables
- Social security percent witholding information and related rules
- W4
Instructions
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Gross Salary Calcuation
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1
Multiply your monthly salary by 12 to determine your gross annual if you are paid monthly. This does not include one-time bonuses or end-of-year gifts.
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2
Multiply your semi-monthly pay by 26 if you are paid semi-monthly. This does not include one-time bonuses or end-of-year gifts.
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3
Add any anticipated one-time bonuses or end-of-year gifts to what was calculated in step 1 or step 2, depending on your situation.
Federal Tax Calculation
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4
Determine the total value of your monthly exemptions by using a W-4 form. Each exemption has a set dollar value. Multiply the number of exemptions times the set dollar value established by the IRS for each exemption and subtract that number from your gross pay.
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5
Determine your Social Security tax. The tax rate for Social Security taxes is available from the Social Security Administration as Social Security & Medicare Tax Rates. If you are an employee, take your gross wages and multiply that times 7.65 percent to calculate your Social Security tax. If you are self-employed, calculate your net earnings. In calculating your net earnings, you can deduct half of the amount of Social Security taxes you owe as a business expense. Multiply your net earning times 92.35 percent to take into account the deductabiklity of half of your Social Security taxes. Multiply your net earnings times 15.3 percent to determine your net earnings from the viewpoint of a Social Security tax viewpoint.
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6
Calculate your Medicare payment, which is another deduction. Multiply 2.9 percent times your gross pay. Deduct half of that from your gross since you are responsible for partially sharing some of that.
State Taxes, Local Taxes and Deductions
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7
Calculate state and local taxes if they are charged in your state and if your local area charges taxes. Although state income tax rules vary, state income taxes are usually calculated by multiplying the tax rate times taxable income. Taxable state income is the same as federal taxable income except for a few states. Consult your state's tax guidelines.
Be aware that state income taxes may be used as a deduction for calculating federal income tax.
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8
Subtract other health related deductions from your gross pay. This could include your share of health insurance and deductions for a dental insurance plan and medical savings account.
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9
Subtract other deductions, such as union dues, U.S. savings bond plans, life insurance, disability insurance, pension contribution, employee stock options plan and executions and assignments against one's pay.
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1
Tips & Warnings
Recheck your calculations by adding all the deductions to your net pay to make sure you accurately arrive at your gross pay.
Make sure you have consulted the most current tax tables.
References
Resources
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