Have you ever wondered what those deductions on your pay stub actually are? How you can estimate your tax withholdings? How can I save more on my paycheck? And what is a net income calculator? Look no further because Checkstubmaker has created an easy guide for you to understand what is being withheld from your paystubs and can help calculate your net income for you!
Income Tax Withholdings
A tax withholding is money that comes out of your paycheck to pay taxes. The biggest withholding is your income tax. The federal and state government collects your income tax gradually throughout the year out of each paycheck, instead of taking it out in one large chunk. This income tax is taken out dependent on what you put on your W-4 form like your filing status. There are 5 filing statuses; single, married filing jointly, married filing separately, head of household, and qualified widow.
You can become exempt if in the previous year you received a refund of all your income tax from your paycheck because you had a zero tax liability and you the upcoming year or current year you expect to have zero tax liability again.
Federal Income Tax
Federal income tax is a tax that is given to the federal government to various services and serves as general revenue for the federal government. The rate as to which how much is taken amount is dependent on your W-4. The more allowance you put in your W-4, the more your employer withholds. Meaning that you get a larger net paycheck. The only downside is if you maximize your paycheck, then come April you may get a bigger tax bill because you didn’t have enough money to cover your tax liability for that year. So instead of getting a tax refund in April, you would actually owe money back to the government. This federal tax rate is broken down into brackets based on your income.
Tax Rates and Brackets
Based on the amount you make, you are put into a certain tax rate. This rate determines and affects your tax withholdings. The tax rates are made into brackets and are based on your taxable income. The more you make, the higher the rate you are taxed. There are 28 possible tax rates. There are seven federal income tax brackets and then there are four main filing statuses. So times seven brackets timed by four filing statuses and you have 28 possible federal tax rates.
State Income Tax
Similar to Federal income tax, State Income Tax creates profit for the local state government to run and specifically on local services like K-12 education and the building and repairs of roads and public transit systems. While almost everyone pays federal income tax, some states don’t even have a state income tax at all. Dependent on what state you are in, state income can fluctuate in flat rates or other types of state taxes like interest and dividends instead of income tax.
In addition to your federal and state income tax, a component of your paycheck withholding is your FICA taxes. FICA stands for Federal Insurance Contributions Act. It helps pay for Social Security and Medicare programs that you will get when you are a senior. This withholding is unique because it is shared between employer and employee. 6.2% of your paycheck is withheld for Social Security taxes and your then your employer pays an additional 6.2%. However that 6.2 % you pay only applies before you hit the Social Security tax cap which is $132,900 for 2019. And then after that, any additional income you earn does not have additional Social Security withholdings.
Unlike the Social Security income limit, Medicare taxes do not have a limit. 1.45% of your paycheck is withheld for Medicare, and then your employer pays the additional 1.45%. There are additional Medicare taxes to those who earn as a single filer $200,000 or $250,000 jointly. That additional tax is 0.9%.
Since FICA withholdings are an employer and employee tax if you are self-employed, you have to pay the self-employment tax which is the same amount which comes out to be 15.3%. However, when you file your taxes there is a deduction available that allows you to deduct the half of the FICA taxes. SO you would still only pay the 6.2% of Social Security and the 1.45% and Medicare if you make that deduction.
There can be additional deductions from your paycheck that can be included like your employer-sponsored health insurance, pre-tax retirement contributions you make, health savings plans, and dependent care assistance programs. There are also deductions that can be done post-tax like a Roth 401(k).
There are also deductions that can come into play like a city and local income taxes.
What is a Net Income Calculator?
Your net income is the income you take home minus all your taxes, withholdings and payroll deductions. This is important to measure because it helps you know how much disposable income that you can have so you can calculate your personal or business expenses. A calculator is a system that calculates your gross income by asking you’re a variety of questions like your state, salary information, and exemptions that you claim.
Now that you have a basic understanding of tax withholdings and how intricate it can be, there are companies who can help you with calculating what your actual net income will be through the services they provide. These can be time-consuming and more complicated than it needs to be.
Here at CheckStubMaker, we value your time and hard-earned income, so we have created an easy, fast and accurate net income or salary paycheck calculator just for those who need their check stubs in a matter of minutes. We are here to help with your finance estimations so you can know your budget. We will do all the calculations with our innovative software for you so you don’t have to invest reading and calculating it on your own.
Let us create your net income calculator today! Click here to set it up!