Whether you’re starting a new job, getting a pay raise or just concerned about a new tax law that’s just passed, you should be able to quickly determine what your payroll taxes and other deductions will be by calling or visiting your human resources department. You can also get a quick, ballpark idea of what you’ll pay with some simple math, or do a little more number-crunching to get a more accurate picture of your tax situation.
Consider Also: Form 1040: What You Need to Know
The Information You’ll Need
To begin your calculation, you’ll need to know the following:
- Your base pay
- Potential commissions or bonuses
- The number of dependents
- Standard deduction vs. itemizing
- Your benefits
- Your tax bracket
- Your local and/or state tax rates
It’s the combination of these factors that determines how much will be taken out of your paycheck each pay period.
What Are FICA Taxes?
One of the easiest calculations to make is figuring out your Federal Insurance Contributions Act taxes. In 2022, you’ll pay 7.65 percent of your income to contribute to your Social Security and Medicare benefits, explains the IRS. The good news is, your employer will match this amount.
You’ll only pay this on the first $147,000 of your income. So, if you earn $60,000 per year and get 26 paychecks of $2,307.69 each, multiply $2,307.69 X .0765 to find that you’ll have $176.54 in FICA deductions for each check.
Be aware that this number will change if you receive specific tax-advantaged benefits or are an immigrant with a specific, qualifying visa that enables you to apply for a FICA tax refund. If you are a civilian federal employee, you might also pay lower FICA taxes, depending on when you were hired.
Your Form W-4 Details
Are you filing as a single person or jointly with a partner? Do you have children or other dependents? The number of dependents you have will impact your tax withholding. You’ll need to talk to your HR department or a tax professional or visit the IRS website or find a free online tax calculator to determine your specific situation.
You'll provide details on Form W-4 that will affect tax withholding. As a single person, for example, you might fill out your W-4 and choose the option to have additional taxes taken out of your paycheck. That way, you can reduce the chances you underpay and have a penalty, and increase the chances you get a refund.
Standard Deduction vs. Itemizing
Will you be taking the standard deduction or itemizing? This will impact your tax liability. These won’t affect your payroll deductions (you get the credits when you file and reduce your tax liability), but if you know you’ll be able to claim certain deductions and get specific tax credit amounts this year, you might adjust your W-4 to lower your withheld taxes.
Once you know what your gross income, adjusted gross income and taxable income are, you can then look at what tax brackets you fall into and estimate your income tax liability.
Consider Also: W-2 Forms: What It Is, Who Gets One & How It Works
The Effect of Benefits
Depending on the benefits your employer offers, or if you sign up for voluntary benefits (and pay them yourself), you might also reduce your taxable income. For example, if you put $100 of your income into a 401(k) or health insurance or a voluntary health plan, that $100 is not taxed as income (since you didn’t receive the $100).
You still pay the FICA tax on some benefits (such as a 401(k) contribution), but not local, state or federal income taxes. You don’t pay FICA taxes on certain health benefits. You can check the Employee Benefits page at the IRS website to learn more.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.