🇺🇸 Federal Paycheck Calculator

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

Updated for tax year 2022

Paycheck calculators by state

United States federal income tax

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

A tax year is different for the federal and state. A federal tax year is the 12-months period beginning October 01 and ending September 30 the following year. The tax year 2021 will starts on Oct 01 2020 and ends on Sep 30 2021. The state tax year is also 12 months but it differs from state to state. Some states follow the federal tax year, some states start on July 01 and end on Jun 30.

Similar to the tax year, federal income tax rates are different from each state. Federal taxes are progressive (higher rates on higher levels of income), while states have either a progressive tax system or a flat tax rate on all income.

The income tax rate varies from state to state. There are 8 states which don’t have income tax and 1 state (New Hampshire) that 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. If you want to understand the changes in detail, refer to this Investopedia article.

Calculate your paycheck in 5 steps

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

Step 1 – Filing status

There is 4 main filing status:

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

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

For example, if you are single and have a child, then you should file as ‘Head of Household’.
If you are married but preferred to file separately from your partner (highly inadvisable), then 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:
Total annual income – Adjustments = Adjusted gross income

Income means money received for pretty much any reason such as wage, rental income, side hustle, unemployment benefits, etc. You just need to add them up to determine your annual income. If you’re paid hourly, you will need to multiple it with your total annual hours.

Adjustments are also known as above-the-line deductions.There are 2 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 complete breakdown of the various type of 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 – (Post-tax deductions + Exemptions) = Taxable income

For post-tax deductions, you can choose to either take the standard deduction amount or itemize your deductions. If your itemized deductions are less than the standard deduction, just 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 – Tax liability

This step is rather straight forward. You just 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 × Tax rate = Tax liability

Step 5 – Additional withholdings

Once you have worked out your tax liability, you minus the money you put aside for tax withholdings every year (if there is any).

The formula is:
Total annual income – (Tax liability + All deductions + Withholdings) = Your annual paycheck

That’s the five steps to go through to work your paycheck. You need to 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 and are used to fund social security and medicare.

For example, in the tax year 2020 Social Security tax is 6.2% for employee and 1.45% for 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. This means that your federal tax bracket varies from year to year and you need to check the latest data before you do your tax return.

For the latest on federal income tax brackets, you can refer to Tax Foundation.

The income tax rate varies from state to state. There are 8 states which don’t have income tax and 1 state (New Hampshire) that has no wage income tax.

Standard deduction

Also known as post-tax deductions, you can choose to either take the standard deduction amount or itemize your deductions. If your itemized deductions are less than the standard deduction, just 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.

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