Knowing if you’ll be getting a tax refund at the end of the year, or if you’ll owe money, can help you plan your personal finances in a number of ways. Depending on your filing status (such as head of household, single, etc.), pre-tax earnings, local taxes and what deductions come out of your paycheck each pay period, your taxes and take home pay will vary.
Knowing how to calculate your taxes when you’re paid a salary and receive your payments weekly will help you plan ahead and be able to manage your money more wisely.
Consider Your Deductions
Per the Consumer Financial Protection Bureau, you provide your employer with information on deductions and adjustments that affect how much is taken from your paycheck in taxes. You do this on the IRS W-4 form where you provide details about yourself, your spouse and the number of dependents. Ultimately, this information can affect how much income tax you’ll pay each year.
Find Your Tax Bracket
Depending on your salary and filing status, you fall into a specific tax bracket. Each of these brackets are associated with specified tax rates and set the percentage of your gross income that you’ll pay each year.
The IRS recently updated its information concerning the 2023 tax brackets. So, you can easily find the numbers on its website with a quick online search.
Look at Your Benefits
If you have opted for specific benefits such as health, dental or vision insurance or a retirement account contribution, you can reduce your tax burden. That’s because those pre-tax deductions are tax-deductible. If you have $100 worth of benefits deducted from your pay each week, you aren’t taxed on that $100 worth of income.
Talk to your company’s bookkeeper or your HR department's benefits specialist to find out how your benefits affect your taxes.
Understand How FICA Works
The Federal Insurance Contributions Act (FICA) is a federal payroll tax and is part of payroll taxes. FICA helps fund both Social Security and Medicare. Each week, you’ll have Social Security tax and Medicare taxes deducted from your paycheck. You will pay 7.65 percent of your gross pay to cover your share of FICA taxes.
Keep in mind that the maximum amount of earnings taxed by Social Security is $147,000 for 2022 and $160,200 for 2023, per the Social Security Administration.
Find Your State Tax Rate
If you live in a state with a personal income tax, you’ll need to factor the state withholding rates into your calculations. Talk to your company’s payroll people or contact a personal financial planner or tax accountant to determine how much tax you’ll pay each week to cover your state income taxes. You can find your state’s tax rates online with a quick search.
Do the Calculation
It might be easiest to calculate your total annual taxes once, then divide this number by 52 to figure out your weekly tax burden. Or, once you have all your numbers (deductions, FICA, federal tax rate, state tax rate) figured out, you can divide your salary by 52 and then determine your taxes for one week.
Your calculation will deduct your federal income taxes (using the number you determined from looking at your tax bracket) and your 7.65 percent FICA taxes (.0765), along with your state income tax amount.
If you believe you know what your bonus, commission or other non-salary payments will be, factor those into your annual tax calculations. You might have to re-do your tax bracket numbers based on whether or not you fall into a new tax bracket. Therefore, you should use both a paycheck calculator and a tax calculator to determine how much you owe in taxes, and what your take home pay will be.
The IRS provides a tax withholding calculator, as well.
Suppose, you intend to file your 2023 tax return as a single with no dependents and in a state with no income taxes, and will earn $2,000 a week. Also, assume that you don’t qualify for any tax credit or exemptions, and pay for no other health insurance other than Medicare. That translates to an annual salary of about $104,000.
But you can claim the standard deduction of $13,850 this year, to lower your income to $90,150. And that would put you in a tax bracket where everyone pays a maximum 22 percent, assuming no other deductions are made.
Now, suppose you contribute the maximum retirement savings amount allowed for 401(k) plans. Then you can deduct $22,500 for the 2023 tax year. In that case, your taxable income will go down further to $67,650. In that tax bracket, you will still pay a maximum of 22 percent. However, less of your money will be subjected to this tax rate, meaning your tax liability will be lower in the end.
Based on this example, you would pay $0 for the first $11,000, 12 percent for the amount between $11,001 to $44,725 ($4,047) and 22 percent for the remainder amount up to $67,650 ($5,043.50). The total would be $9,090.50.
It’s worth noting that you won’t enjoy tax deductions for FICA if you are an employee. So, if you earn $2,000 per week, 7.65 percent of your gross income or $153 per week, will be withheld. That is about $7,956 per year. So, your total taxes for 2023 would be $17,046.50 or $327.82 per week.
Also, if you earned more than $200,00 per year as a single filer, $125,000 as a married couple filing separately or $250,000 as a married couple filing jointly, the IRS says you would also be expected to pay an additional 0.9 percent as an additional Medicare tax. But based on this example, that extra tax would not apply.
- IRS: Form W-4 Employee’s Withholding Certificate
- IRS: IRS Provides Tax Inflation Adjustments for Tax Year 2023
- IRS: Tax Withholding Estimator
- IRS: Topic No. 560 Additional Medicare Tax
- Social Security Administration: Maximum Taxable Earnings
- Consumer Financial Protection Bureau: Understanding Paycheck Deductions
- These instructions do not calculate state income taxes. To determine whether your state has an income tax and what the rate is, click on the second link listed under Resources. Please note that some states have many different tax brackets, so you may need to consult your individual state's tax department to obtain more specific information.
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.