How to Calculate Your Federal and FICA Taxes, and Also Calculate the Take Home Pay on Your Paycheck

Before we get started, I would like to note that this article focuses on federal income taxes, and does not include state income taxes. Since I live in Florida, I have not had to look into any state income tax laws, because Florida does not require its residents to pay state income tax. However, after studying this article and using the provided spreadsheets, you should be able to apply the principles within this article to calculate your specific state’s income tax contribution. At the very least, use this article as a guide to find the correct answer.

You may have heard the US has a very complicated system of paying taxes. While the validity of this statement is up for debate, it is actually quite easy to calculate how much you will pay in taxes, contribute to things like social security and medicare, and calculate how much money you will have left in your paycheck after contributing to these systems, including contributing to your employer’s benefits. Before diving into the mathematics of calculating these numbers, I highly recommend reviewing the common financial terms related to your paycheck.

Have your paycheck handy, and follow along using one of my financial calculators. The linked spreadsheets will perform all of the calculations for you, but the steps below detail the logic contained within the spreadsheets.

Instructions

NOTE: When performing the below calculations, do everything with respect to the pay period and not for the year.

1. Determine pay frequency (usually bi-weekly or bi-monthly)
2. Determine gross income for pay period
   1. This will be your hourly rate of pay times the number of hours worked within the pay period, or your annual salary divided by the number of pay periods per calendar year (26 for bi-weekly or 24 for semi-monthly
3. Add together all pre-tax benefits for pay period
4. Add together all post-tax benefits for pay period
5. Determine if imputed income present, and if so, add together
   1. This should be documented on your paycheck stub, but is usually only present if contribute into employer benefit such as group term life insurance that covers an amount greater than $50k
6. Determine filing status
   1. From filing status definition in previous section, and for 2020, there are two withholding methods, and three filing statuses for each withholding method
   2. Filing status tables are provided in the spreadsheet, and are also detailed in the Publication 15-T IRS documentation
7. Determine taxable income
   1. Subtract all pre-tax benefits from gross income (subtract value in Step 3 from value in Step 2)
8. Determine federal tax owed
   1. Using appropriate filing status table from Step 6, perform the following:
      1. Find row in appropriate table where taxable income falls between upper and lower limit columns of table
      2. Subtract lower limit value of row in Step 8.1.1 from taxable income in Step 7
      3. Multiply result in Step 8.1.2 by percentage listed percentage column of table
      4. Add baseline value in appropriate row of table to result in Step 8.1.3
9. Determine your FICA taxable income
   1. Subtract all pre-tax benefits from gross income except for 401k contributions 
   2. If imputed income present on paycheck, add imputed income to figure in step 9.1
10. Determine Social Security tax owed
    1. Multiply value in step 9.2 by 6.2%
11. Determine Medicare tax owed
    1. Multiply value in step 9.2 by 1.45%
12. Determine take home pay
    1. Add values in 8.1.4 (federal tax), 10.1 (Social Security), and 11.1 (Medicare) together
    2. Add values in 12.1, Step 3, and Step 4 together
    3. Subtract value in Step 2 by value in 12.2
13. Compare calculated values to what is on paycheck for accuracy
    1. The value in 12.3 is your actual take home pay for the pay period
    2. The value in 8.1.4 is the amount of federal tax you paid for the pay period
    3. The value in 10.1 is the amount of money you contributed to Social Security
    4. The value in 11.1 is the amount of money you contributed to Medicare