Salaried employees must pay federal, state, social security and Medicare taxes on their gross earning every pay period. When you start a job, you are given a W-4 to fill out that your employer uses to calculate salary taxes. The W-4 will tell the employer how many allowances you are claiming. In Colorado, the state and federal taxes are figured after any pre-tax deductions if the employee contributes to a 401K or other qualifying fund. To find out what the net pay would be, an employer follows these guidelines for calculating tax liability.
No Pre-Tax Deductions
Step 1
Calculate Medicare taxes, which is 1.45 percent (.0145) of the employee's gross earnings. For instance, if your gross salary is $1,200, the employer will take 1,200 x .0145 = $17.40.
Step 2
Figure the social security tax, which is 6.2 percent (.062) of the employee's gross earnings. For social security, the employer will take 1,200 x .062 = 74.40.
Step 3
Calculate the federal taxes by using the IRS Publication 15-T, which is the withholding table for figuring federal tax liability. Since there are no pre-tax deductions, the entire gross pay is subject to tax. For this instance, the employee has no federal allowance and is single. Find the table in the publication for a single person receiving salary. Find the gross amount in the table with zero allowances and the tax liability is $132.38.
Step 4
Figure the Colorado state tax liability by using 4.63 percent (.0463) of the federal tax liability. For this example, it will be 1,200 x .0463 = 55.56.
Step 5
Subtract the calculations from the gross pay to determine net pay. For this example, take 1.200 (gross) – 17.40 (Medicare) – 74.40 (social security) – 132.38 (federal) – 55.56 (state) = 920.26 (net).
With Pre-Tax Deductions
Step 1
Calculate Medicare taxes, which is 1.45 percent (.0145) of the employee's gross earnings. For instance, if your gross salary is $1,200, the employer will take 1,200 x .0145 = $17.40. Note: Medicare is taxed on the gross before any pre-tax deductions.
Step 2
Figure the social security tax, which is 6.2 percent (.062) of the employee's gross earnings. For social security, the employer will take 1,200 x .062 = 74.40. Note: Social security is taxed on the gross before any pre-tax deductions.
Step 3
Calculate the federal taxes by using the IRS Publication 15-T, which is the withholding table for figuring federal tax liability. Because the employee contributes $50 a pay day to a 401K, the federal tax is figured like this: 1,200 – 50 = 1,150. Find the table for a single salaried person with no allowances, which is 124.88.
Step 4
Figure the Colorado state tax liability by using 4.63 percent (.0463) of the federal tax liability. The federal gross is $1,150 because of the pre-tax deduction. The state tax is figure like this: 1,150 x .0463 = 53.25.
Step 5
Subtract the calculations from the gross pay to determine net pay. For this example, take 1.200 (gross) – 50 (pre-tax) – 17.40 (Medicare) – 74.40 (social security) – 124.88 (federal) – 53.25 (state) = 880.07 (net).
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