How to Calculate Net Salary in Texas
Texas does not require an employer to withhold state income tax from employees’ paychecks. However, hourly and salaried workers are subject to federal withholding taxes. Texas also does not allow creditors to garnish wages, but an employee’s wages or salary can be garnished for child and spousal support, Internal Revenue Service tax levy and federal student loan. Salaried employees are usually paid the same amount each pay period. Therefore, their net salary stays constant unless they have a pay or deduction change. To calculate net salary in Texas, you need the employee’s gross salary and deductions.
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Instructions
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Determine gross salary by dividing the annual salary by the number of annual pay periods, such as 12 monthly payrolls, 24 semimonthly payrolls or 26 biweekly payrolls.
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Subtract pretax deductions, such as a Section 125 medical plan or flexible spending account, from gross salary to arrive at taxable salary.
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Deduct federal income tax according to the filing status and number of allowances the employee claims on lines 3 and 5 of her W-4 form, and the IRS Circular E tax table that matches her taxable salary, pay period, allowances and filing status. For example, if she claims married filing status and two allowances plus earns a taxable salary of $2,000 semimonthly, then according to Page 49 of the 2011 Circular E, withhold $170 for federal income tax from each of her semimonthly paychecks.
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Withhold Social Security tax (4.2 percent in 2011) from taxable salary up to the annual income limit of $106,800, and Medicare tax at 1.45 of all taxable salary.
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Subtract garnishment, if applicable. Texas restricts child support withholding to 50 percent of disposable salary and federal student loan withholding to 15 percent. For IRS tax levies, consult Publication 1494 for the amount of salary that is exempt from the levy. Disposable salary is the employee’s pay after legally required deductions.
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Deduct after-tax voluntary deductions, such as Roth individual retirement arrangements, 401k and union dues, if applicable. The remainder is the employee’s net salary.
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Tips & Warnings
In some cases, such as child support and student loan wage deductions, you may charge the employee an administrative fee of up to $10 per month for executing the garnishment.
References
- Internal Revenue Service: States Without a State Income Tax
- Internal Revenue Service: (Circular E), Employer's Tax Guide
- Internal Revenue Service: Form W-4
- Patriot Software; What Are Taxable Wages?; November 2010
- Attorney General of Texas, Child Support Online: Wage Withholding
- Texas Workforce Commission: Allowable Deductions Under the FLSA
