Overview of Federal Taxes
When your employer calculates your take-home pay he or she will withhold money for federal income taxes and two federal programs: Social Security and Medicare. The amount withheld from each of your paychecks to cover these federal expenses will depend on several factors, including your income, allowances and filing status.
|Take Home Salary||--%||$--|
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Federal Paycheck Calculator
Photo credit: ©iStock.com/RyanJLane
Federal Paycheck Quick Facts
How Your Paycheck Works: Income Tax Withholding
When you start a new job or get a raise you’ll either agree to an hourly wage or an annual salary. So why can’t you just multiply that hourly wage by the number of hours you’ll work and get your take-home pay for each week? And why can’t you just divide your annual salary by the number of times you’ll get paid to calculate each paycheck you’ll take home?
Well, unless you work off the books (which we don’t encourage), the reason you can’t calculate your paycheck easily yourself is that money is withheld from each of your paychecks and it can be tough to figure out how much you’ll take home without the aid of a paycheck calculator like ours.
What exactly is withheld? The big one is income tax. Rather than slam you with a big(ger) tax bill every April, the government takes your income tax payments gradually throughout the year, taking a bite out of each of your paychecks. It’s your employer’s job to withhold this money based on the information you provide in your W-4 Form when you start your job (or you re-submit your W-4 after a life change like a marriage).
Some people are exempt from federal income tax withholding. To be exempt, you must meet both of the following criteria: 1) In the previous tax year you received a refund of all federal income tax withheld from your paycheck because you had zero tax liability AND 2) This year you expect to receive a refund of all federal income tax withheld because you expect to have zero tax liability again. If you think you qualify for this exemptions (for example because your income is quite low) you can indicate this on your W-4 Form.
Federal Top Income Tax Rate
When it comes to tax withholding, employees face a trade-off between bigger paychecks and a smaller tax bill. The more allowances you claim on your W-4, the bigger each paycheck will be. You can see that reflected if you play around with the allowances input in our paycheck calculator. The downside to maximizing each paycheck is that you might end up with a bigger tax bill if, come April, you haven’t had enough withheld to cover your tax liability for the year. That would mean that instead of getting a tax refund you would owe money.
If the idea of a big one-off bill from the IRS scares you then you can err on the side of caution and claim fewer allowances on your W-4. Each of your paychecks will be smaller but you’re more likely to get a refund and less likely to have tax liability when you fill out your tax returns.
Of course, if you opt for more withholding and a bigger refund you’re giving the government a loan of that extra money withheld from each paycheck, whereas if you opt for less withholding (fewer allowances) you could theoretically invest the extra money in your paycheck and make money on it, or use it to pay down debt. That’s great for committed personal finance nerds and those who have the savings to cover a big tax bill, but most people would rather have a bigger refund than get a bigger bill.
When you fill out your W-4 there are worksheets that will walk you through the allowances based on your marital status, the number of children you have, the number of jobs you have, your filing status, whether someone else claims you as your dependent, whether you plan to itemize your tax deductions and whether you plan to claim certain tax credits.
If you got hit with a big tax bill last year and you don’t want that to happen again you can request a certain dollar amount of additional withholding from each paycheck. You can specify this amount on your W-4 Form.
How Your Paycheck Works: FICA Withholding
In addition to income tax withholding the other main federal component of your paycheck withholding is for FICA taxes. FICA stands for the Federal Insurance Contributions Act. Your FICA taxes are your contribution to the Social Security and Medicare programs that you’ll rely on when you’re a senior. It’s your way of paying into the system.
FICA contributions are shared between the employee and the employer. 6.2% of each of your paychecks is withheld for Social Security taxes and your employer contributes a further 6.2%. However, that 6.2% that you pay only applies to income up to the Social Security tax cap, which for 2016 is $118,500. Any income you earn above $118,500 doesn’t have Social Security taxes withheld from it, but will have Medicare taxes withheld.
There is no income limit on Medicare taxes. 1.45% of each your paychecks is withheld for Medicare taxes and your employer contributes a further 1.45%. Make more than $200,000 as a single filer or more than $250,000 as a married couple filing jointly? You’ll pay an extra 0.9% in Medicare taxes.
2015 - 2016 Income Tax Brackets
|$0 - $9,225||10.00%|
|$9,225 - $37,450||15.00%|
|$37,450 - $90,750||25.00%|
|$90,750 - $189,300||28.00%|
|$189,300 - $411,500||33.00%|
|$411,500 - $413,200||35.00%|
|Married, Filing Jointly|
|$0 - $18,450||10.00%|
|$18,450 - $74,900||15.00%|
|$74,900 - $151,200||25.00%|
|$151,200 - $230,450||28.00%|
|$230,450 - $411,500||33.00%|
|$411,500 - $464,850||35.00%|
|Married, Filing Separately|
|$0 - $9,225||10.00%|
|$9,225 - $37,450||15.00%|
|$37,450 - $75,600||25.00%|
|$75,600 - $115,225||28.00%|
|$115,225 - $205,750||33.00%|
|$205,750 - $232,425||35.00%|
|Head of Household|
|$0 - $13,150||10.00%|
|$13,150 - $50,200||15.00%|
|$50,200 - $129,600||25.00%|
|$129,600 - $209,850||28.00%|
|$209,850 - $411,500||33.00%|
|$411,500 - $439,000||35.00%|
If you work for yourself and you’re trying to calculate your paycheck, remember that you’re responsible for withholding the employee and employer halves of your FICA taxes. If you previously had an employer you’re used to having only 6.2% and 1.45% withheld from FICA taxes, but once you start working for yourself you’ll need to double those percentages to cover both halves of the FICA withholding.
How Your Paycheck Works: Deductions
Federal income tax and FICA tax withholding are mandatory – there’s no way around them unless your earnings are low enough to exempt you. However, they’re not the only factors that count when calculating your paycheck. There are also deductions to consider.
For example, if you pay any amount toward your employer-sponsored health insurance coverage that will be deducted from your paycheck. When you enroll in your company’s health plan you’ll be able to see the amount that will be deducted from each paycheck. If you elect to contribute to a Health Savings Account or Flexible Spending Account to help with medical expenses those contributions will be deducted from your paychecks, too.
Also deducted from your paychecks are any pre-tax retirement contributions you make. So, if you elect to save 10% of your income in your company’s 401(k) plan you’ll see that reflected in each paycheck. If you increase your contributions your paychecks will get smaller.
Some deductions from your paycheck are made post-tax. These include Roth 401(k) and Roth IRA contributions. The money comes out of your wages after income tax has already been applied. That means you can withdraw that money tax-free in retirement.
How Your Paycheck Works: Pay Frequency
Some people get monthly paychecks (12 a year), some are paid twice a month on set dates (24 paychecks a year) and others are paid bi-weekly (26 paychecks a year). The frequency of your paychecks will affect their size. The more paychecks you get each year, the smaller each paycheck will be assuming the same salary. However, many people find that it’s easier to budget with more frequent, smaller paychecks than with big monthly paychecks.
How Your Paycheck Works: Local Factors
If you live in a state or city with income taxes you’ll see that reflected in your paychecks. Just like with your federal income taxes, your employer will withhold part of each of your paychecks to cover state and local taxes. You can visit the SmartAsset paycheck calculator page for your state to find out more.
Paycheck Calculators by State
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the mot paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate, and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances, applying relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we used $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that reflect the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2014 & 2009 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics