Tax Calculations on Money Earned

U.S. citizens are taxed on the money they earn from worldwide sources. It’s in your best interest to ensure enough money is withheld from your earnings to pay your federal income tax obligation at the end of the year. You can calculate the amount that should be withheld and compare it with the actual amount withheld. You can adjust that amount by giving your employer a new W-4 to increase or decrease your withholding. If your state imposes an individual income tax, you can calculate and compare those amounts as well.

Types of Taxable Earnings

The Internal Revenue Service has a broad definition of what constitutes earned income. Your employee wages, salary, tips and bonuses are all taxed. The amounts you receive from union strike benefits, long-term disability benefits prior to reaching the minimum retirement age or payments received as a clergy person are subject to federal income tax. Income earned from self-employment, owning or operating a business, or as a statutory employee, such as a full-time insurance agent, is considered taxable earnings.

Federal Tax Withholding Calculation

Verify enough money is being withheld by calculating the amount yourself. Go to the IRS website and pull up Publication 15, Employers Tax Guide, for the current year. Go to the tax tables, also known as wage bracket charts. Find your filing status and payroll frequency, such as Single Persons – Weekly Payroll Period. Look at the left-hand column and find your gross pay. Now look across the top of the chart and find the number of withholding allowances you’ve claimed on your W-4. Go down the column until you’re at your gross pay line. Where the two lines meet is your correct withholding amount.

Social Security and Medicare

Your employer calculates your Social Security and Medicare withholding as a percentage of your gross earnings. As of 2013, the Social Security withholding rate was 6.2 percent on earnings up to $113,700. The Medicare withholding rate was 1.45 percent on all your earnings. To verify the amount being withheld, multiply your earnings times the Social Security and Medicare percentage separately and compare those totals with what is being withheld. If they don’t match, contact your employer to find out why the figures are off and to correct the problem.

State Income Tax Calculation

According to the Federation of Tax Administrators, the only states that don’t impose an individual income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington State and Wyoming. If you live in any of the other states, your employer will use your W-4 to determine the number of your withholding allowances. You can verify the withheld amount is correct by comparing the amount listed in your state’s tax tables with what is actually being withheld, and adjust the withholding amount if needed.

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About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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