Payroll tax laws apply to all employees unless an exemption applies. The Internal Revenue Service administrates federal withholding regulations; if applicable, your state revenue agency oversees state income tax withholding laws. Depending on your location, city or local income tax may apply. The amount your paycheck will be after taxes depend on the taxes that apply to you and the respective calculation method.
Before you begin payroll tax calculation, see if you have qualifying pretax deductions, such as a traditional 401k plan, and deductions that meet the requirements of section 125 of the Internal Revenue Code, such as a flexible spending account or a Section 125 medical plan. If you have a qualifying pretax deduction, subtract the benefit from your gross pay before you calculate the respective tax. Your gross pay is your entire pay for the payroll period before deductions happen. For example, subtract your Section 125 benefit and traditional 401k plan contribution for the pay period from your gross pay to arrive at your taxable wages for federal income tax purposes. Pretax deductions lower your taxable wages because they are subtracted from your gross income before the respective tax is withheld.
Determine the amount of federal income tax you will pay. Check lines 3 and 5 of your W-4 form for your filing status and allowances, then use the withholding tax table in IRS Circular E that matches your filing status, allowances, wages and pay period to figure the withholding amount. In 2011, you pay 4.2 percent of your taxable wages for Social Security tax, up to $106,800 for the year, and 1.45 percent of all of your taxable earnings for Medicare tax. You can obtain Social Security and Medicare tax rates from the Circular E for the appropriate tax year.
Figure out the state taxes you are supposed to pay. For example, in Georgia you pay only state income tax; in Ohio you pay state income tax, and school district tax if you live in an affected school district area; and in California, you pay personal income tax and state disability insurance. Contact your state revenue agency to know the withholding taxes that apply to you and the calculations. While most states charge state income tax, a few, such as Alaska, Florida and New Hampshire, don’t.
To know how much your paycheck will be after taxes, subtract the previously mentioned federal and state taxes from your earnings after you subtract qualifying pretax deductions. Keep in mind that the remainder might not be your take home pay. For example, if you have voluntary post-tax deductions -- those that do not qualify as pretax -- or if you have a wage garnishment, to arrive at your take-home pay. Subtract all of these deduction from your pay after you subtract taxes.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.