How much will I take home after tax
Going through your payslip if you are an employee can be shocking and leave you wondering “why is FICA taking all my money?”. You expected your salary to be more than what you received and you are left wondering about how your income is being calculated, or if maybe your employer is cheating you out of your hard-earned money somehow. Well, before you make any accusations, you need to understand some basic things about tax.
Employees should already be familiar with the FICA and the reductions that it causes on your payslip. FICA stands for the Federal Insurance Contributions Act which is a payroll tax usually deducted from the paycheck of every employee and remitted to the Internal Revenue Service for social security and Medicare. Employers also supplement the FICA funds deducted from the employee’s paycheck before remitting to the IRS. FICA is usually used by the government to provide much-needed funds to retirees, individuals living with disabilities, and orphans.
For employees, the employer can decide your gross income, however, your final take-home salary is determined after the several deductions of taxes on your gross income. After the deduction of taxes, your gross income is reduced to a net income, which is your take-home salary.
How is my net income calculated from my gross income?
The net income is the final take-home amount that an employee receives after tax deductions, voluntary donations and others have been subtracted from the gross income.
To calculate your net income:
Calculate the amount of your FICA tax in the year
FICA tax is the mandatory tax deducted from the paycheck of employees for social security and Medicare. The current tax rate for social security is 6.2% for both the employer and the employee each (12.4%) and a tax rate of 1.45% for medicare also for both the employer and the employee each (2.9%). This makes the FICA tax rate to be 6.2% + 1.45% = 7.65% as at 2020.
Therefore to determine how much will be deducted for the FICA tax rate, you would multiply your gross income by 7.65% to get the amount that will be paid for FICA to the IRS.
For example, if Juliana has a gross income of $1000. Her FICA tax will be
$1000 x (7.65/100) = $76.5. This calculation shows that $76.5 will be deducted from Juliana’s salary for the settlement of her FICA taxes.
Consider the exemptions, deductions, and tax credits available to you
The deductions, exemptions, and tax credits available to different individuals is dependent on their individual circumstances. Deductions and exemptions can be based on certain criteria and can be given by the IRS when an individual meets these prescribed criteria. Some deductions are given based on the filing status of the taxpayer who can be filing as a single or married. However, a taxpayer would need to visit the IRS website in order to be informed about the deductions, tax credits, or exemptions available
Determine your tax rate from your tax Income bracket
A tax bracket is the tax group, with a particular income tax rate, that a taxpayer falls into as a result of their income. The tax bracket a taxpayer falls into determines the tax rate his income will be charged with and it determines how much the taxpayer owes as tax.10% tax rate is the current lowest tax rate charged for the tax bracket for low-income earners and 37% tax rate for the highest income earners.
However, a taxpayer needs to check the chart to determine which tax bracket he/she falls into and the tax rate for your tax bracket. However, it should be noted that the income checked against the tax bracket should be the resulting income after subtracting deductions and tax exemptions from gross income.
Calculate your federal income, state, and local income tax
Your federal income tax is dependent on the tax bracket you fall into and is calculated with that tax rate. Your state income tax is determined by the tax rates as stated in your state of residence, also the local income tax of your local government of residence should be determined and calculated accordingly. The state tax rate varies from state to state and also local government tax rate varies from region to region.
It is necessary to also consider other deductions to your gross income, whether voluntary deductions or others. This includes deductions made into a retirement savings account, health insurance premium, union dues, charity donations, etc. All these deductions should also be subtracted from your resulting income after the removal of taxes if they are “after-tax deductions” or subtracted from the gross income and before the removal of taxes if they are “pre-tax deductions”.
The total net income of the employee will then be the resulting amount after the removal of FICA taxes, federal income taxes, state income taxes, and other deductions from the gross income of the employee.
We are a tax relief firm dedicated to giving you the best results regarding resolving your tax debts. Our team of qualified professionals is available round the clock to provide you with the assistance you need to overcome your tax debts and be well on your way to financial freedom. Contact us now at 888-585-8629 or 617-430-4674 or send us an email at email@example.com.
For more information, email firstname.lastname@example.org