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  • Stubbuilder
  • Apr 11, 2024

How To Calculate Your Take-Home Pay

When you are offered a job, the salary amount you agree to is your gross pay. Generally, an employer cannot extend you an opportunity to work and tell you what your net pay will be because each employee’s tax withholdings are different from each other.

In this blog, we will make you all understand what a Take-Home pay is and how you can calculate a home pay stub. So, let’s get started.

What Is a Take-Home Pay?

Take-home pay is the net income paid to the employees after the voluntary contributions, benefits, and taxes all have been deducted. It is less than the gross earnings because of the several amounts are taken out from deductions.

What Affects Your Take-Home Pay?

The net amount you receive on your paycheck every week is the gross wage subtracted from the deduction which is why your Take-Home pay is always the lower amount. The deductions include the following:

  • Insurance premiums like medical insurance
  • State, local, and federal taxes
  • 401(k) retirement account contributions
  • Social Security and Medicare contributions

How To Calculate Home Pay Stub?

Follow the following steps to calculate home pay stub:

  • Calculate FICA Taxes For The Year: FICA is your contribution to Social Security and Medicare. Everyone’s earned income in the U.S. receives a flat-rate deduction which increases yearly based on the inflation rate which is up to 3.2%. However, you can deduct the percentage from your annual gross pay to reduce the amount before making additional calculations.
  • Deduct Personal Exemptions: The IRS provides you with a personal exemption before they calculate your income tax. The rate is not always the same from year to year. You will need to determine the present exemption amount to make an accurate calculation. The exemptions depend upon what claims you have made on your W-4 form. You can also deduct the present rate from whatever your gross income is for the current year.
  • Deduct Standard Deduction: The standard deduction is based on the tax filing. This deduction changes every year. You can visit the IRS website to decide the current rate before deducting an amount from your gross income.
  • Decide Tax Income Bracket: You will have a great idea about your taxable income once you have deducted a typical deduction and personal exemption. The outcome figure is what will determine your federal and state income tax brackets. The tax foundation updates the bracket tables every year. You can visit their website for any update on the information.
  • Calculate Federal, State, and Local Income Taxes: State, federal, and local taxes get applied to your gross income. Your federal tax depends upon your filing status and on your tax bracket. You might have pre-tax deductions that you can subtract from your salary before or after figuring out the amount of income tax due. For example, you can have 6% of contribution to a 401(k) retirement plan that is pretax. Subtract the amount first from your gross income to determine your taxes.
  • After you have calculated the FICA and income taxes and deducted them and other deductions from your annual gross pay, the remaining amount is called your Take-Home pay. To figure out how much your net pay is per paycheck, divide the total deductions and your net pay by the number of pay periods and you will have it throughout the year.

Example of How To Calculate Home Paystub

Take the following example:

Sam is filing as a single individual with zero claims on his W-4 form. He accepts a job offer for a position at a company that is willing to pay him $15 per hour. He is only required to work 35 hours per week. Therefore, his total gross pay for every pay week is $525 ($15 X 35 hours = $525).

Sam has health benefits and pays a health insurance premium worth $40 per week. You can decide his Take-Home pay by calculating his deductions:

  • Subtract any Pre Tax Deductions: Like health insurance premiums from the employee’s gross wages. $525 – $40 = $485.
  • Calculate FICA Taxes: Multiply the employee’s wages after the pretax deductions by 7.65% to calculate how much goes towards FICA. $485 X 0.0765 = $37.10 so the FICA tax to be withheld from the employee’s gross pay is $37.10.
  • Calculate State Income Tax: Sam lives in Arizona, Phoenix, where the employees can elect what amount of percentage of their gross income goes to state taxes. He chose 2.5%. Multiply $485 by 2.5% to figure out the state tax withholding: $485 x 0.025 = $12.12.
  • Calculate Local Income Tax: Local income tax does not apply to all the states, for example, Phoenix does not have any local income tax.
  • Get Your Take-Home Pay by subtracting all the calculated deductions from the gross pay: Net Pay = Gross Pay – Deductions.

 

In Sam’s Case:

Gross Pay = $525

Health Insurance Premiums = $40

FICA Tax = $37.10

Federal Income Tax = $63

State Income Tax = $12.12

Local Income Tax = $0

Net Pay =  $525 – $40 – $37.10 – $63 – $12.12 – $0 = $373.78 = $373.78, so the net pay Sam can expect to receive will be $372.78 per 35-hour work week.

Conclusion

Mastering the calculation of your take-home pay is key to effectively managing your finances. By following the steps provided, you can accurately calculate the amount of money you will take home after taxes, deductions, and contributions are accounted for. Your take-home pay is not just your salary; it represents the income available for covering expenses, saving, and investing. If you are looking to create Pay Stub Generator, then Stubbuilder is your one-stop solution.