Between taxes, withholdings, and deductions calculating how much you're actually making can be confusing.
Our free Paycheck Calculator can help you determine your take-home pay and how much you can afford to save for the future.
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Workplace retirement planning programs are a great way to secure a sound financial future.
In 2023, wage employees are allowed up to $22,500 in tax-deferred 401(k) savings. Self-employed individuals, who are contributing as employer and employee with a Solo 401(k), can put in up to $66,000. Savers over 50 can contribute an extra $7,500. Our free Paycheck Calculator is a helpful tool for determining how much take-home pay you’ll have from your salary and how big a 401(k) contribution you can afford to make.
Gross pay is the amount received per paycheck before any taxes or deductions. To calculate, divide your annual salary by the number of pay periods in a year. If you’re paid weekly, this number is 52. If you’re paid biweekly, this number is 26 or 27. Some employers go by semi-monthly pay periods on the 1st and 15th or 15th and 30th to save on payroll costs — which would be a divisor of 24.
Calculate your annual salary by multiplying your gross pay (before tax deductions) by the number of pay periods per year — 24 (semi-monthly), 26 or 27 (biweekly), or 52 (weekly).
Divide the sum of all assessed taxes by your gross pay to determine the percentage of taxes taken out of your paycheck. Taxes include FICA (Medicare and Social Security), as well as federal, state, and local withholdings, which are typically found on a W-4 statement.
Subtract your voluntary deductions (health insurance and group life insurance premiums, union dues if applicable, and retirement plan contributions) from your gross income to determine your taxable income. Then subtract what you owe in federal, state, and local taxes to determine net income.
If you’re self-employed or an entrepreneur, try Ubiquity’s Solo 401(k) Paycheck Calculator.
A paycheck can be confusing at first glance. How much money are you actually making? What’s coming out?
Employers automatically withhold taxes from each paycheck that lower your take-home pay. It is your employer’s responsibility to pay the federal government on your behalf, based on the information you provided on Form W-4 when you first started work. You may need to reevaluate your situation and resubmit your form after getting married, getting divorced, having a baby, starting a second job, or spending part of the year unemployed. Adjusting your withholdings helps you manage your tax bill come April, so you end up with a refund rather than a large bill.
Your employer also deducts money to pay for social programs like Medicare and Social Security, which you’ll have access to when you’re a senior citizen. You contribute 6.2% of your paycheck to the Social Security system, and your employer puts in another 6.2%. If you’re self-employed, you put in 12.4% as both employer and employee. These percentages apply up to a limit of $142,800. You are taxed 1.45% for Medicare, with no income limit, and your employer contributes another 1.45%. Self-employed individuals pay 2.9% for Medicare. If you make over $200,000 or your household makes over $250,000, you’ll have to pay an additional 0.9% in Medicare tax.
To summarize, you are responsible for paying all employer and employee taxes if you work as an entrepreneur, freelancer, franchisor, small business owner, or otherwise self-employed individual. Total self-employment tax comes to 15.3%, which includes both Social Security and Medicare. Fortunately, at tax-filing time, a deduction allows you to deduct half of the FICA taxes (the employer amount) as a business expense, so the total is more like 7.65% (6.2% for Social Security + 1.45% for Medicare).
Federal income tax and FICA tax are mandatory deductions. On the other hand, there are deductions you may choose. For instance, you may contribute to a Health Savings Account (HSA), a Flexible Savings Account (FSA), or a 401(k) retirement plan before any taxes are withheld from your paycheck. Making these pre-tax contributions lowers the amount of income that is subject to taxation, which can help grow your wealth. While you have to pay tax at the time of withdrawal, you could end up paying a lower percentage if you withdraw the money at retirement time when you’re earning less. Also, with a 401(k), you have the opportunity to earn free money from the growth of your investments, with compounding interest.
Pay frequency can also affect the size of your paycheck. If you’re paid more often, each individual paycheck will be smaller. You may also have state and local taxes taken out of each paycheck to cover the cost of education, sanitation, police protection, highway maintenance, and welfare.
Choose Ubiquity as your Small Business 401(k) Administrator. We provide low-cost, hassle-free retirement savings plans that can be set up in minutes. Call or contact us through our online form to get started.