When you receive your paycheck, your take-home pay is often distinctly less than what you earned. The difference in gross earnings (actual earnings) and net pay (take-home amount) is the result of income tax withholdings and other deductions, such as insurance premiums or contributions to a retirement plan. If you are creating a budget, it is necessary to know your weekly and monthly income. Using a few calculations and IRS Publication 15, you can calculate your take-home pay before you receive your paycheck.
Multiply your hourly wage by the number of hours you worked in the pay period to determine your gross earnings. For example, if you earn $20 an hour and worked 40 hours, your gross earnings are $800 (20 x 40). If you worked more than 40 hours in a week, be sure to factor in overtime, which is generally 1.5 times your hourly rate for all hours over 40. For example, if you earn $20 an hour and worked 45 hours, your gross earnings are $950 ((20 x 40) + (30 x 5)).
Multiply your gross pay by the current FICA tax rate. As of 2012 the tax rate is 7.65 percent of your paycheck. Using the previous example, your FICA tax is $72.66 (950 x .0765). Write this amount down.
Subtract any pretax withholdings, such as contributions to a retirement plan and insurance premiums. If you contribute $50 a week to a 401(k) plan, your remaining earnings are $900 (950 – 50).
Calculate your weekly withholding allowance, which is a nontaxable portion of your income that the IRS allows your employer to subtract for each exemption in your household. As of the 2012 tax year, the IRS allows you to subtract $73.08 each week for each allowance claimed on Form W-4. If you claim three allowances, your withholding allowance is $219.24. Subtract this amount from the remaining earnings to determine which portion of your paycheck is subject to income taxes. Using the previous example, your taxable earnings with three withholding allowances are $680.76 (900 - 219.24).
Locate your tax in the tax chart on IRS Publication 15. If your taxable income is $680.76, you are single, claim three withholding allowances, and are paid weekly, your income tax is $55. Write this number down.
Calculate your state and local income tax withholding, if applicable. For more information, visit your state’s Department of Revenue and locate an income tax withholdings chart. Write this amount down.
Subtract the FICA taxes from your paycheck after your pretax withholdings. Using the previous example, your remaining earnings are $827.34 (900 – 72.66).
Subtract your federal income tax from the remaining earnings. Using the same example, your remaining earnings are $772.34 (827.34 – 55).
Subtract your state and local income tax from the remaining amount. If your state and local taxes are $35.67, your remaining earnings and take-home pay will be $736.67 (772.34 – 35.67).
If you are a salary employee, you do not need to calculate your hourly or overtime rate to determine your take-home pay. Some insurance premiums are not withheld before calculating income taxes. Consult with your employer’s human resource department to determine the correct withholding method. FICA taxes consist of Social Security taxes (6.2 percent) and Medicare taxes (1.45 percent). Only the first $110,100 of your earnings are subject to Social Security taxes. To determine how many withholding allowances you claimed for the year, you must refer to Form W-4, which is held by your employer’s human resource department.
Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.