How to Calculate My Payroll Tax With Pretax 401k Contributions
A Roth 401k plan requires you to make your contributions in after-tax dollars while a traditional 401k plan permits you to make contributions in pretax dollars. If your employer offers employee benefits that include a 401k plan, you are likely allowed to make your contributions in pretax dollars. Pretax means that your payments are subtracted from your pay before withholding certain payroll taxes. When figuring payroll tax with pretax 401k contributions, apply the Internal Revenue Service's and applicable state and local agency’s guidelines.
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Instructions
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Subtract Social Security and Medicare taxes from gross pay before deducting 401k contributions; traditional 401k plan are subject to these two taxes. At the time of publication, calculate Social Security tax at 4.2 percent of gross pay up to the annual wage maximum of $106,800, and Medicare tax at 1.45 percent of all gross pay.
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Deduct 401k contributions from your income after withholding Social Security and Medicare taxes; this reduces your wages that are subject to income tax. For example, you earn $430 weekly and you elect 3 percent of your income to go toward your 401k account. Your 401k contributions are $12.90 and your wages for income tax purposes are $417.10.
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Subtract federal income tax according to your filing status, number of allowances, and the IRS Circular E tax table that equals that information plus your wages after 401k contributions and pay period. Check your W-4 filing status and allowances, if necessary.
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Contact the applicable state and local revenue agency to know if 401k contributions are considered pretax for state and local income tax purposes, as this varies by jurisdiction. Many states and local governments follow IRS procedures and allow employers to deduct contributions from the employee’s pay before subtracting income tax; however, on occasion, such as in Pennsylvania, traditional 401k contributions are taxable.
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Tips & Warnings
If the 401k plan does not allow pretax contributions, subtract all payroll taxes from your pay before deducting your contributions.
