Most employers looking for new hires typically post expected annual salary requirements along with a job description. You might see an open job listing with a $40,000 annual salary requirement, for example, and find yourself wondering how much you’d be earning daily or weekly if you’re hired.
This article will break down that salary amount for you, explain why location matters, and give some pointers on budgeting so you can maximize your earnings.
What $40,000 a Year Looks Like Per Hour
Let’s assume you have a typical 40-hour workweek. That means you work a total of 2,080 hours per year (40 x 52) and about 173 hours per month. So let’s break those numbers down.
What About Income Taxes?
Of course, federal income taxes reduce the amount that you actually take home. A single individual earning $40,000 would be in the 12% tax bracket. So how much taxes would this individual pay according to 2021 tax bracket thresholds?
The IRS calculates taxes on a cumulative basis. Only the amount over the previous bracket is taxed at the higher level. The first $9,875 is taxed at a rate of 10% ($987.50). The remainder is taxed at a rate of 12% ($4,681.50).
|$40,000 Breakdown After Taxes ($34,331)|
Where You Live Matters
Many states in the U.S. also collect state income tax in addition to federal income taxes. The amount taxed varies by state. Here’s a sample:
- New York: 4% to 8.82%
- Colorado: 4.63%
- Georgia: 1% to 5.75%
- California: 1% to 12.3%
So, if you’re earning $40,000 and you live in California, you’ll pay an additional $888.02 per year in state income taxes.
Nine states in the U.S. don’t have income taxes. Those states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. If you’re trying to maximize your take-home income, it pays to live in one of those states.
Is $40,000 a Good Salary?
The minimum wage in the U.S. is $7.25. If you work 40 hours per week, that adds up to $15,080. For a family of four in 2021, the poverty guideline is $26,500. For a single individual, the poverty guideline is $12,880.
So a $40,000 salary is a lot higher than the minimum wage and poverty guidelines. But is it enough? The short answer is, it depends. Do you have debts you are currently paying down? What are your expenses like? Everyone has different circumstances and financial needs and goals.
Ways To Budget
Budgeting is the best way to track and control your finances. Budgeting can sound scary, but it doesn’t mean you can’t have fun or enjoy life. It just means you understand where your money goes each month. Budgeting lets you prioritize your spending on what matters most to you.
Here are two popular ways to budget:
- 50/30/20 method: 50% goes to needs, 30% to wants, and 20% to saving or paying off debt.
- Envelope method: You create an envelope for every spending category and split your cash into each envelope.
Ultimately, how you decide to budget is up to you, but it’s a good practice.
Information is accurate as of June 23, 2022.