How Do You Calculate Your Take-Home Pay?

1. First, you’ll need your gross pay.

This amount is often shown as a line item on your pay stub. If not, you can calculate gross pay by:

• Dividing your annual salary by the number of pay periods this year, or
• Multiplying your hourly wage by the number of hours worked in a pay period.

2. Next, calculate your FICA taxes for the year.

FICA (also known as “payroll taxes”) is the contribution to Social Security and Medicare that every American pays into. The flat-rate deduction increases year-over-year based on inflation.

In 2022, the rate is 7.65% of earnings up to $147,000. The exact breakdown includes 6.2% for Social Security and 1.45% for Medicare. If you’re a high earner, you will owe an additional .9% Medicare tax on amounts over $200,000 (single) or $250,000 (joint).

3. Subtract the standard deduction.

Before calculating your income tax, the IRS used to allow personal exemptions based on claims made on one’s W4 form. However, the federal Tax Cuts and Jobs Act of 2017 canceled the personal exemption through at least 2025, increasing the standard deduction instead.

The 2021 standard deduction is:

• $12,950 for singles or married filing separately
• $19,400 for head of household, or
• $25,900 for married couples filing jointly.

4. Determine your federal tax bracket.

The federal tax rate applies to your adjusted gross income. This is your gross annual pay from work PLUS dividends, interests, short-term capital gains, annuities and pensions, then subtracting for allowable deductions: the standard deduction (mentioned in the last step), educator expenses (up to $250), student loan interest (up to $2,500), alimony payments (100%), and contributions to a retirement account (up to $20,500 for those under 50 and $27,000 for those over 50 in 2022).

The federal tax brackets for 2022 are:’

• 10% – Income up to $10,275 (single), up to $20,550 (married), or up to $14,650 (head of household)
• 12% – $10,275 – $41,775 (single), $20,550 – $83,550 (married), or $14,650 – $55,900 (head)
• 22% – $41,775 – $89,075 (single), $83,550 – $178,150 (married), or $55,900 – $89,050 (head)
• 24% – $89,075 – $170,050 (single), $178,150 – $340,100 (married), or $89,050 – $170,050 (head)
• 32% – $170,050 – $215,950 (single), $340,100 – $431,900 (married), or $170,050 – $215,950 (head)
• 35% – $215,950 – $539,900(single), $431,900 – $647,850 (married), or $215,950 – $539,900 (head)
• 37% – $539,900+ (single), $647,850+ (married), or $539,900+ (head)

5. Determine your state and local income taxes.

Deduct state and local taxes. Every state is different. You can find a rundown here.

6. Consider any additional payroll deductions.

Payroll deductions may include a healthcare premium for health/dental/vision, a monthly life insurance premium, and your 401(k) contributions.

Contributing to a 401(k) will set aside money for your future retirement, while reducing the amount of taxes owed today. If your company offers matching contributions, this is literally free money added onto your income that isn’t taxed until you withdraw it after age 59.5.

Contact Ubiquity to learn more about opening a Solo 401(k) or a Small Business 401(k).