🇺🇸 Federal Paycheck Calculator

Calculate your take-home pay after federal, state & local taxes

Updated for 2023 tax year on Sep 19, 2023

Paycheck calculators by state

United States federal paycheck calculation

All residents and citizens in the USA are subjected to income taxes. Residents and citizens are taxed on worldwide income (working overseas, etc.). In contrast, nonresidents are taxed only on income within the jurisdiction.

A tax year is different between federal and state. A federal tax year is 12 months beginning October 01 and ending September 30 the following year. The tax year 2023 will start on October 01, 2022, and end on September 30, 2023. The state tax year is also 12 months, but it differs from state to state. Some states follow the federal tax year; some start on July 01 and end on June 30.

Like the tax year, federal income tax rates differ from state income tax rates. Federal taxes are progressive (higher rates on higher income levels). At the same time, states have an advanced tax system or a flat tax rate on all income.

The income tax rate varies from state to state. Eight states are without an income tax, and one has no wage income tax.

It is also worth noting that the recent Tax Cuts and Jobs Act (TCJA) of 2017 made several significant changes to the individual income tax across the board. To understand the differences in detail, refer to this Investopedia article.

The above paycheck calculator is applicable for calculating paychecks of individuals who have an annual salary, hourly wage, or are seasonal workers or self-employed.

Calculate your paycheck in 6 steps

There are six main steps to work out your income tax (federal & state) liability or refunds. First, you must determine your filing status to understand your tax bracket.

Step 1 – Filing status

There are four main filing statuses:

• Single
• Married, Filing Jointly, or Widow(er)
• Married, Filing Separately
• Head of Household

Your marital status and whether you have any dependents will determine your filing status.

For example, if you are single and have a child, you should file as ‘Head of Household’. Suppose you are married but prefer to file separately from your partner (highly inadvisable). In that case, you will file as ‘Married, Filing Separately’.

Refer to IRS to understand more.

Step 2 – Adjusted gross income

The second step is to figure out your adjusted gross income.

The formula is:
Net income – Adjustments = Adjusted gross income

Income means money received for any reason, such as wage, rental income, side hustle, unemployment benefits, etc. You need to add them up to determine your annual income. You must multiply it by your total annual hours if you were paid hourly.

Adjustments are also known as above-the-line deductions or pre-tax deductions. There are two types of deductions: above-the-line & post-tax (more in the next step).

Some of the adjustments are:

• Student loan interest
• Contributions to a retirement account (401k, IRA)
• Health savings account deduction
• Educator expenses
• Moving expenses for a job
• College tuition and fees

For the breakdown of the various above-the-line deductions or adjustments, refer to this article from thebalance.com.

Step 3 – Taxable income

Now you need to figure out your taxable income.

The formula is:
Adjusted gross income – Standard/Itemized deductions = Taxable income

You can either take the standard deduction amount or itemize your deductions. If your itemized deductions are less than the standard deduction, claim the standard amount 🙂

Some of the deductions you can itemize are:

• Charitable donations
• Home mortgage interest

Exemptions have been eliminated from Federal income tax since the Tax Cuts and Jobs Act (TCJA) was implemented in 2018. But some states still have exemptions in their income tax calculation.

You might be confused with deductions and exemptions, so the following is a quote from Zacks.com:
Tax deductions are items you claim to reduce your tax liability while exemptions refer to the people you claim to reduce tax liability, such as dependents.

Step 4 – Income tax liability

This step is straightforward. You need to understand which tax bracket you belong to based on your taxable income. If your filing status is ‘Married, Filing Jointly’ or ‘Widow(er)’, you need to combine your taxable income with your partner’s.

The formula to calculate tax liability:
Taxable income × Income tax rate = Income tax liability

Step 5 – Payroll tax liability

There is an additional tax (surprise!) before the final step. Federal Insurance Contributions Act (FICA) is the payroll tax taken directly from your paycheck. FICA is made up of social security and medicare. The self-employed are taxed twice as much as regular employees.

The formula is:
Net income × Payroll tax rate = Payroll tax liability

Step 6 – Minus everything

After calculating your total tax liability, subtract any yearly tax withholdings (if applicable) and post-tax deductions.

The formula is:
Total annual income – (Income tax liability + Payroll tax liability + Pre-tax deductions + Post-tax deductions + Withholdings) = Your paycheck

That’s the six steps to go through to work your paycheck. You must do these steps separately for federal, state, and local income taxes.

For visual explanations of the above steps, you can refer to Youtube videos from Ladder Up, MoneyCoach, or Edspira.

Federal Insurance Contributions Act (FICA)

Also known as ‘paycheck tax’ or ‘payroll tax’, these taxes are taken from your paycheck directly. They are used to fund social Security and Medicare.

For example, in the 2020 tax year, the Social Security tax is 6.2% for employees and 1.45% for the Medicare tax.
If your monthly paycheck is $6000, $372 goes to Social Security, and $87 goes to Medicare, leaving you with $6000 – $372 – $87 = $5541

Social Security

Medicare

Income tax brackets

Every year, IRS adjusts some tax provisions for inflation. Your federal tax bracket varies yearly, and you need to check the latest data before you do your tax return.

You can refer to Tax Foundation for the latest federal income tax brackets.

The income tax rate varies from state to state. Eight states don’t have an income tax, and one (New Hampshire) has no wage income tax.

Standard deduction

Also known as post-tax deductions, you can take the standard deduction amount or itemize your deductions. If your itemized deductions are less than the standard deduction, claim the standard amount :-).

Some of the deductions you can itemize are:

• Charitable donations
• Home mortgage interest

For a list of itemizable deductions, refer to Dough Roller’s ultimate list.

FAQs