Paycheck Calculator

Your paycheck represents more than just your hourly wage or annual salary divided by pay periods. Multiple deductions reduce your gross pay before you receive your net pay. These deductions fall into several categories: mandatory federal taxes, state and local taxes, Social Security and Medicare contributions, and voluntary deductions like retirement savings and insurance premiums.

Federal Income Tax Withholding

Federal income tax represents the largest deduction for most workers. Your employer withholds this amount based on information you provide on Form W-4, including your filing status and number of dependents. The federal tax system uses progressive brackets, meaning higher income portions face higher tax rates. Your withholding should approximate your actual tax liability, though exact amounts depend on deductions, credits, and other income sources you'll report when filing your annual return.

The tax brackets adjust periodically, but the progressive structure remains consistent. Income gets taxed at increasing rates as it crosses bracket thresholds. For example, only the portion of income exceeding a bracket minimum gets taxed at that bracket's rate, not your entire income. This structure means effective tax rates (total tax divided by total income) stay lower than marginal rates (the rate on your last dollar earned).

FICA Taxes: Social Security and Medicare

FICA taxes fund Social Security and Medicare programs. Social Security tax takes 6.2% of your gross wages up to an annual wage base limit. Once your earnings exceed this threshold, no additional Social Security tax applies for that calendar year. Medicare tax takes 1.45% of all wages with no income limit. High earners pay an additional 0.9% Medicare tax on wages exceeding certain thresholds.

Your employer matches your FICA contributions, effectively doubling the amount paid into these programs. Self-employed individuals pay both the employee and employer portions, totaling 15.3% for Social Security and Medicare combined. These mandatory contributions build your eligibility for Social Security retirement benefits and Medicare coverage later in life.

State and Local Income Taxes

Most states impose income taxes ranging from less than 3% to over 10% of gross income. A few states have no income tax, while others use flat rates or progressive brackets similar to federal taxes. Some cities and counties add local income taxes on top of state taxes. State withholding depends on your state W-4 equivalent form and your specific location.

State tax rules vary significantly. Some states tax all income sources equally, while others exempt certain types like retirement income or Social Security benefits. A few states tax investment income differently than wages. If you work remotely for a company in another state, you might owe taxes to multiple states, requiring careful withholding and filing to avoid overpayment or underpayment penalties.

Pre-Tax Retirement Contributions

Contributing to employer-sponsored retirement plans like 401(k) or 403(b) accounts reduces your taxable income. These pre-tax contributions come out before federal and state income tax calculations, lowering your current tax bill while building retirement savings. Your contributions grow tax-deferred until withdrawal during retirement, when you'll likely be in a lower tax bracket.

Annual contribution limits apply to retirement accounts. Many employers match a portion of your contributions, providing free money toward retirement. Even if matching isn't available, the tax benefits make these contributions valuable. Contributing enough to maximize employer matches should be a priority, as this represents an immediate return on investment that's hard to match elsewhere.

Health Insurance Premiums

Employer-sponsored health insurance premiums typically come from pre-tax dollars through a Section 125 cafeteria plan. This arrangement reduces your taxable income, lowering both income and FICA taxes. The tax savings can make employer plans cost-effective even when premiums seem high compared to marketplace alternatives.

Premium amounts vary widely based on coverage level (individual versus family), plan type (HMO, PPO, HDHP), and employer contributions. Many employers pay a portion of premiums, with employees covering the remainder. High-deductible health plans often cost less in premiums and allow health savings account (HSA) contributions, offering additional pre-tax saving opportunities for medical expenses.

Other Common Deductions

Additional deductions might include dental and vision insurance, flexible spending accounts (FSA) for healthcare or dependent care, life insurance premiums, disability insurance, commuter benefits, and union dues. Some deductions come from pre-tax dollars, reducing taxable income, while others use after-tax dollars. Pre-tax deductions provide immediate tax savings, making them generally more valuable than after-tax deductions.

Voluntary deductions like additional retirement contributions or extra tax withholding help you meet financial goals or avoid tax surprises. If you consistently owe taxes when filing your return, increasing withholding throughout the year prevents large tax bills. Conversely, if you regularly receive large refunds, reducing withholding increases your take-home pay without waiting for a refund.