How to Figure Tax Liability on Pretax Income
Knowing the tax liability you face on your pretax income is essential if you think that you will have fewer deductions at the end of the year than you originally assumed. Some employers offer employees the ability to deduct some insurance premiums and retirement withholding from their gross pay before calculating the amount of tax owed. Typically, this means more money in the employee’s paycheck and does not leave the employee owing taxes at the end of the year. Pretax deductions do not affect Social Security or Medicare withholding. Knowing what your taxes would be on your gross pay can help you decide if you want to opt in to a pretax -- or cafeteria -- plan.
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Instructions
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1
Ask your employer to see your most recent Form W-4. Inspect the document to determine how many allowances you are claiming and what your filing status is.
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Download Publication 15 for the current year from the Internal Revenue Service's website (irs.gov).
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3
Look at the gross pay listed on your check stub. This is the amount you made before your employer made any adjustments to your pay.
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Locate the withholding table that corresponds to your marital status and pay frequency. For example, if you are single and receive weekly pay, your 2011 withholding table begins on page 38 of Publication 15.
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Find the row that shows your gross pay amount, and look at the column for the number of withholding allowances you have in order to determine the withholding amount for your pretax income. For example, if your gross pay is $957 and you have three allowances, your tax liability is $101.
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Tips & Warnings
Follow this procedure with your state withholding tables to determine your state tax liability on your pretax income.
Tax rates can change, so make sure you use the most current table available when determining your tax liability.
