Paystub Calculator: How to Calculate Your Take Home Pay
Payday is always a great day, but do you ever find yourself guessing how much each paycheck will be? This experience commonly happens to workers who don’t fully understand the deductions that come out of their paycheck each pay period including taxes, social security, and medicare.
Keep reading to learn what’s included in your pay stub, what’s deducted, and how to calculate your pay stub yourself.
What is included in a paystub?
A pay stub is a form your employees receive each time they get paid. It lists key details about an employee’s pay, such as taxes and other deductions taken out of the employee’s earnings.
A pay stub shows wages earned for that specific pay period (current pay period), as well as year-to-date amounts (YTD).
Deductions also appear on an employee’s pay stub. In the end, the pay stub reveals the employee’s actual take-home pay (net pay) that will be deposited into their account.
Deductions that you will find on a pay stub include:
- Employee tax deductions: Taxes mandated by government agencies, such as federal income tax, state and local taxes (if applicable) andFICA tax.
- Benefits and other deductions: These deductions are any extra benefits provided by the employer, including insurance premiums, retirement plans, or charitable donations.
- Employer contributions: This includes items such as the employer’s contribution to employee benefits or the portion of FICA tax.
How to calculate net income
An employer creates their employees pay stubs using the following information:
- Payroll cycle (weekly, bi-weekly, semi-monthly, monthly)
- Tax withholdings
- Benefit withholding for each employee.
Employee allowances are specified on an employees’ W-4, so you must fill out this form as accurately as possible.
To continue to calculate your net income, follow the steps below.
1. Deduct pre-tax contribution benefits
Determine taxable income by deducting any pre-tax contributions to benefits. A pre-tax deduction means that an employer withdraws money directly from an employee’s paycheck to cover the cost of benefits before withdrawing money to cover taxes.
Pre-tax deductions can include health insurance, retirement funds (401k), or a commuter assistance plan, lowering your overall tax burden as an employee.
2. Withhold applicable taxes
Once you deduct all pre-tax income, you want to withhold all applicable taxes, this most often includes federal tax, but may also include state and local classes, depending on where you live. Not every state has an income tax.
FICA stands for Federal Insurance Contributions Act and is a U.S. federal payroll tax. FICA tax includes a 6.2% Social Security tax and 1.45% Medicare tax on earnings, for a total of 7.65%. In 2021, only the first $142,800 of earnings are subject to the social security tax. Employers also pay an equivalent amount to the IRS.
3. Deduct any post-tax deductions
These deductions depend on the extra benefits that the employer provides and that the employee wants to be deducted. They may be post-tax deductions to benefits or other contributions.
These other deductions may include:
- Disability insurance
- Life insurance
- Retirement plans
- Charitable donations.
4. Garnishments (if applicable)
Employers may need to deduct garnishments from employee wages if the court orders them to do so. Examples of garnishments include:
- Unpaid taxes
- Child support
- Loan repayments
- Credit cards
- Medical Bills
After calculating these four categories and deducting them from your gross pay, you are left with your net pay.
Pay Stub Calculator Example
To fully illustrate the process of calculating your pay stub, here is a simple example.
Alex’s annual income is $75,000, and your company processes payroll bi-weekly, meaning Alex is paid 26 times a year. Alex’s gross wages each pay period total ($75,000 / 26), or $2,884 per pay period.
Based on the allowances on his W-4, your company should withhold 20% of Alex’s gross pay ($577) for federal taxes. Alex lives in a state with no state taxes. He also pays $50 each pay period for his share of the company health insurance plan.
Alex’s net pay is $2,884, minus a total of $577 for taxes and $50 for his health insurance premiums. His net pay is $2,257.
The pay stub will include all of this information for the current payroll period and YTD.
This example is the case for salaried workers. Hourly employees, on the other hand, can review details on their total hours worked and any hours paid as overtime wages.
Calculating Your Pay Stub
A pay stub lists all of the key information you need to understand your pay. Understanding how your take-home pay is calculated will help avoid missing any discrepancies that may arise from your paycheck. The IRS offers a tax withholdings estimator to help you calculate your net income.
FormPros can help you easily generate or calculate a paystub. Create pay stubs for proof of income or employment quickly and painlessly using our easy-to-use pay stub generator. Form Pros also helps you generate other tax forms such as W-2 forms, W-4 forms, and more.
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