Offered a New Job? Here’s How To Tell What Your Paycheck Will Really Look Like
Written by
Cynthia Measom
Edited by
Amber Barkley
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Your first payday at your new, better-paying job has finally arrived, and as you excitedly look at your pay stub, you’re more than a little disappointed. While you didn’t expect to keep 100% of your earnings, you also didn’t expect so much to be taken out of your paycheck before it hit your bank account. Unfortunately, mandatory withholdings and voluntary deductions can cause your earnings to be less than you hoped.
Here’s a breakdown of what gets taken out of your pay, so you’ll understand what your paycheck will really look like going forward.
Gross Pay vs. Net Pay
The first thing you should understand is the difference between gross pay and net pay.
The term “gross pay” typically refers to the amount you earn before taxes and various deductions, including health insurance. When you are offered a job, your prospective employer will provide you with your gross pay amount, such as $64,000. Your gross pay amount is used to determine your income tax bracket, which is used to calculate federal tax withholding.
Net pay — also known as take-home pay — is the amount that’s paid to you via paycheck after taxes and other deductions are subtracted.
How Net Pay Is Calculated
Your net pay is calculated by first taking your gross pay amount and subtracting mandatory deductions, including federal taxes, state taxes, Medicare taxes and Social Security taxes.
Here are the percentages that apply:
- Federal income tax rate: 10%-37%, depending on pay
- State income tax rate: 1%-10%, if applicable
- Social Security tax: 6.2%
- Medicare tax: 1.45%
Next, you subtract any voluntary deductions, such as health insurance premiums, retirement account contributions or flexible spending account contributions. The remaining amount is your net pay.
How To Determine Federal Tax Withholding
The following types of employment-related income are subject to federal tax withholding, according to the Internal Revenue Service:
- Regular pay, vacation pay and commissions
- Reimbursements and other expense allowances
- Pensions and bonuses
Your employer withholds federal income tax from your pay based on the current tax rates and information from your federal Form W-4 Employee Withholding Certificate, such as your filing status and whether you are claiming any dependents.
Use the IRS’s Tax Withholding Estimator to estimate your federal income tax withholding.
How To Determine State Tax Withholding
Most U.S. states have state tax withholding, but some don’t, including the following:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Wyoming
- Washington (other income levies apply)
- New Hampshire (other income levies apply)
If you live in a state that has tax withholding, you’ll fill out a state withholding form or a state W-4 in addition to a federal W-4.
Use ADP’s Salary Paycheck Calculator to find out how much your state tax withholding is.
How To Determine FICA Withholding
FICA withholding is made up of Social Security tax and Medicare tax. Employers and employees pay 6.2% each for Social Security and 1.45% each for Medicare. So, your part would be 7.56% of your total wages.
However, after employees reach $168,600 in earnings during a calendar year, FICA is no longer deducted for the remainder of the year.
How To Determine Health Insurance Deductions
In general, health insurance through your employer — a 125 plan, health savings account or flexible spending account — is deducted from your pay before taxes. This is to your advantage, because your pay amount will be lower when taxes, such as FICA, are calculated, which means that you’ll pay less in taxes.
To determine your health insurance deduction, you’ll need to know the employee portion of the premium, which you can find on your pay stub.
How To Determine Retirement Account Contributions
Don’t forget to factor in any retirement account contributions, which can be either calculated as a percentage of your salary or a set amount. The percentage or amount can be added to the Salary Paycheck Calculator to help determine your net pay amount.
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