How to Calculate Your Paycheck and Salary

Your salary direct deposit should include a report of withholdings, allowances and deductions.

Calculate your paycheck before establishing savings, investment and budget plans. Learn about withholding and deductions made to earnings by your employer's payroll department. Some withholdings, such as Form W4 allowances, may require adjustment according to family size changes. Because Internal Revenue Service laws change slightly each year, review IRS Publication 15 Circular E before calculating your salary paycheck. IRS publishes tax information for the present tax year. IRS's "pay as you go" system collects your taxes incrementally each pay period.

Step 1

Divide your annual salary by 12. Earning a salary of $60,000 equals a $5,000 salary each month. If you're paid twice per month, your bimonthly check should be $2,500. If you're paid each week, your gross earnings equal $1,250. If you're a nonexempt employee and earn overtime, multiply the amount of hours worked per pay period by 1.5. Salaried employees may be subject to a 45-hour workweek rather than 40 hours.

Step 2

Calculate the number of withholding allowances you've claimed on Form W4. Multiply the number of allowances by the amount for a single allowance for the pay period. Find this information in this year's IRS Publication 15 Circular E. For example, Circular E lists an approximate $70 allowance for an employer paid each week. By claiming four allowances, your employer multiples $70 times 4, or $280. Calculate the result by subtracting $280 from your gross earnings of $1,250, which is $1,080.

Step 3

Subtract other deductions from your gross earnings per pay period. Deductions such as health and insurance costs, retirement plan accounts, or flexible medical spending accounts lower gross earnings. Consult your human resources department for a current recap of your nontaxable deductions per pay period. For example, if you elect to pay your IRA $100 each month, your monthly taxable earnings decrease to $4,900 from $5,000.

Step 4

Tally federal tax withholdings from your paycheck after reviewing tax tables available in Circular E. Depending on your earnings and marital status, calculate the amount according to your tax withholding percentage. If you're in the 28 percent bracket, your weekly wage of $1,250 multiplied by 0.28 equals $350 in federal tax withholdings. The result is $900 for the pay period.

Step 5

Deduct your state and municipal government's local taxes. These rates vary by location. Consult your human resources department about how these rates are calculated. According to the IRS, residents of some states pay no state income tax.

Step 6

Calculate Medicare and Social Security taxes. Medicare taxes 1.45 of gross earnings, or about $18.13 based on earnings of $1,250 per week. In late 2010, Social Security taxes the first $106,800 at 6.2 percent, or about $78.13 on your weekly earnings.

Step 7

Deduct your withholdings and allowances from gross salary. Check your results with payroll processor ADP's free salary calculator.


Discuss any additions or subtractions from W4 withholding with your financial adviser.

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