How to Calculate Taxes With a Salary Increase
Employers are required by law to withhold taxes from their hourly and salaried employees' paychecks. Generally, salaried employees are paid a set wage each pay period; therefore, their taxes withheld tend to remain the same. However, when a salaried employee receives a raise, his withholding taxes most likely will need to be adjusted.
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Instructions
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Use the IRS withholding tax tables (Circular E) to determine the amount of federal taxes to withhold. For instance, say the employee claims 3 dependents and single status on his Form W-4. His pay schedule is weekly, and his salary has been increased to $900 per week. According to page 37 of the 2010 Circular E, calculate as follows:
Total wages = $900
Amount for 1 withholding allowance (Table 5--percentage method) = $70.19
W-4 Allowance = 3
Multiply $70.19 x 3 = $210.57
Subtract $210.57 from $900, which equals $689.43 (amount subject to withholding)
Go to page 39 of the 2010 Circular E
$489.43 (excess over $200) x 15 percent = $73.41 + $8.40 = $81.81 (federal taxes to be withheld every week). -
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Calculate state tax increase. State taxes vary; further, states such as Florida and South Dakota do not charge state income tax. If you are supposed to pay state income tax, check with your local workforce agency (department of labor) for your state tax percentage, which is based on your taxable income.
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Withhold Social Security taxes according to the limit regulated by the Federal Insurance Contributions Act (FICA). For 2010, the Social Security withholding percentage is 6.2 percent of all wages, up to the annual limit of $106,800. For instance, say your biweekly income has been raised to $800. Multiply $800 by 6.2 percent, which equals $49.60 weekly Social Security taxes. Once you have earned $106,800 for the year, your Social Security withholdings cease until the next year.
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Deduct Medicare taxes, based on the amount FICA regulates. For 2010, the Medicare withholding percentage is 1.45 percent of all wages. There is no annual wage limit on Medicare taxes.
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