The amount that your employer offers to pay you never seems to quite match the number shown on the check you get at the end of each pay period, but that's not because your employer is stiffing you. The federal government and most state governments require your employer to withhold a portion of your paycheck for various federal and state taxes. The amounts withheld depend on your filing status and the number of allowances you claim on your Form W-4. While you might be thinking you can reduce the amount withheld by claiming more allowances, if you don't have enough withheld during the year, you'll have to pay the balance — and possibly additional interest and penalties — when you file your taxes at the end of the year.
Federal Payroll Taxes
Payroll taxes apply to your earned income, including your salary, and are made up of two parts. They are split with your employer so you pay half and the company pays half. The Medicare tax is equal to 2.9 percent total, so you'll see 1.45 percent of your paycheck go to Medicare taxes. The Social Security payroll tax is equal to 12.4 percent, so 6.2 percent comes from you and 6.2 percent from your employer, but it only applies to a certain amount of income each year. For 2018, it applies to the first $128,400 of your income.
To calculate the payroll taxes taken out, multiply your salary by 7.65 percent. For example, if you make $5,000 per month, multiply $5,000 by 0.0765 to find that $382.50 will be taken out for payroll taxes.
Federal Income Taxes
The amount that your employer withholds for federal income taxes depends on your salary, filing status and pay period. If you want to calculate your withholding the old-fashioned way, you can use the withholding tables found in IRS Publication 15-E. However, you can also use the online IRS Withholding Calculator to find out how much will be withheld.
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For example, if you are single, claim two allowances, are paid monthly and have a $5,000 per month salary, use the Single Monthly table. Find that $5,000 falls between $4,995 and $5,005 and slide right to the column for two allowances to find that you will have $614 withheld for federal income taxes.
State and Local Income Taxes
Each state has a different income tax regime. Unless you live in one of the states without an income tax, you will have another chunk of your income taken out for state tax purposes. Many states, such as Illinois, use similar tables as the federal government to calculate how much must be withheld. Using the same monthly income of $5,000 for a single person claiming two allowances and the Illinois tables, you'll find that you add $90.75 plus the amount over $2,000 times 4.95 percent, or $148.50. That means your total Illinois state income tax withholding is $239.25.
Calculating Your Salary after Taxes
After you've figured out how much will be withheld for each of the various taxes, add them together. Then, subtract the total taxes from your salary to find out how much you have after taxes. Finishing the example, add $382.50 in payroll taxes, $614 in federal income taxes, and $239.25 in Illinois state income taxes to find your total tax withholding is $1,235.75. Then, subtract $1,235.75 from $5,000 to find your monthly salary after taxes equals $3,764.25.