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- Do 401(k) Deductions Reduce FICA Wages?
- How to Calculate Property Tax Using Mill Rate
- How do I Calculate Tax Savings on Mortgage Interest?
- How to Calculate Actual Wages When You Pay Medical Insurance & Contribute to a 401(k)
- Effective Tax Rate Calculation
Your pay stub does not specifically show your tax deductions based on your hourly pay rate. This is because your hourly rate is a basis for your tax deductions, but it is not used to calculate the actual amounts. To figure your tax deductions, start with your hourly rate, which leads to your gross wages and ultimately your deduction amounts.
Hourly Rate Calculation
Divide your total hours worked for the pay period by your gross wages to arrive at your hourly pay rate. For instance, weekly gross wages of 961.54 divided by 40 hours comes to $24.04 per hour. Your tax deductions would be based on $961.54.
If you have pretax deductions such as Internal Revenue Service-qualified health insurance, a 401(k) or a flexible spending account, subtract your contributions from your gross wages before calculating taxes. The result is your taxable wages. If you don’t have pretax deductions, the entire amount of your gross wages is taxable.
Federal Income Tax
To calculate federal income tax, apply the tax bracket that applies your wages and filing status. As of 2012, you pay federal income tax at 10, 15, 25, 28, 33 or 35 percent on wages over a certain amount. For example, you claim single filing status and three allowances on your W-4. As of 2012, the IRS gives $73.08 per allowance for a weekly pay period. Multiply $73.08 by three to arrive at $219.24. Subtract $219.24 from your weekly pay of $961.54 to get $742.30. This puts you in the 25 percent tax bracket. You would pay 25 percent plus a flat amount of $93.60 on wages over $721.
Social Security and Medicare Taxes
As of 2012, calculate Social Security tax at 4.2 percent of your taxable wages up to $110,100 for the year, and Medicare tax at 1.45 percent of all your taxable wages for the year.
State and Local Taxes
If you must pay state and local taxes, the calculation rules vary by location. For example, in Pennsylvania, as of 2012, a flat rate of 3.07 percent applies regardless of the amount of wages earned. In Alaska, as of 2012, you’re taxed at 0.8, 1.3, 1.8, 2.7, 3.6, 4.2, or 5.1 percent of your gross taxable wages. Use your state revenue agency or local tax assessor’s calculation criteria if such taxes apply.
If you’re an independent contractor or self-employed person who’s paid by the hour, you make quarterly estimated tax payments to the IRS. Use the worksheet in Form 1040-ES to determine whether you should pay estimated tax and the amount. The worksheet includes tax rates based on filing status and income after applicable credits and adjustments.
- IRS.gov: Circular E, The Employer's Tax Guide
- Payroll-Taxes: Pennsylvania State Tax Information
- Arizona Department of Revenue: Changes to Arizona Withholding for Wages Paid After December 31, 2010
- IRS.gov: Form 1040-ES
- State of Colorado: What Do “Pre-tax” and “After-tax” Mean?
- Social Security Administration: 2012 Social Security Tax Rate and Maximum Taxable Earnings
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