How can I manually calculate my federal income tax per pay period?
ELI5: Tax withholdings and how to calculate it
Taxes are calculated per year, it’s a progressive system, and you actually decide how much gets taken out of your paycheck.
For the taxes taken out of your paycheck, basically the software takes the allowances you put on your w4, and it then extrapolates out your entire year of income and takes out what you tell it to. So, it’s not actually a per paycheck thing, it’s a per year thing. It says, ok OP said that they get 2 allowances, and OP will make $xxxxx this year, so I need to withhold $yyyyy taxes for them.
This is why everyone (wrongly) thinks that bonuses and/or overtime are taxed higher- they aren’t, they are WITHHELD at a higher rate because the tax software assumed your yearly earnings would be $xxxxx and now you have this extra income it didn’t account for, so it takes out extra taxes so you don’t get screwed over at tax time.
The progressive nature of the tax code means that you aren’t taxed a flat x% on your income- google the tax tables and you can see what it looks like. Basically there are different buckets of income, and they are taxed at different rates. You have to fill up one bucket to move onto the next bucket.
Also remember that come tax time it’ll even out- if you overpaid over the year, and told your job to take out too much for taxes, you’ll get it back as a refund. On the flip side, if you withhold too little, you’ll owe come tax time.
More on reddit.comHow much taxes being taken out of paycheck is "normal"?
How much taxes do I get taken out of my paycheck?
Helpful tool: https://www.paycheckcity.com/calculator/hourly/
More on reddit.comWhat is the federal payroll tax rate?
The federal payroll tax (FICA) is currently 15.3% and is split equally between employers and employees. Here’s how it breaks down: Employers pay 6.2% of Social Security tax and employees pay 6.2%, for a total of 12.4%. A further 1.45% of Medicare tax is paid by the employee, and the employer matches this 1.45%, for a total of 2.9%. The combined rate is 15.3%.
How is employer tax calculated?
Employer taxes are calculated using a number of variables, including the type of tax, the employee’s wages or salary, and the employer’s payroll tax rate.
Is payroll tax deductible?
Yes, the portion of payroll taxes that you pay as the employer is a deductible business expense. This is a key benefit that reduces your company’s taxable income and saves on taxes. Specifically, you can deduct the employer share of Social Security and Medicare (FICA), all Federal and State Unemployment Taxes (FUTA and SUTA), and any other state-specific employer taxes. It’s important to note that while you withhold the employee’s portion of FICA and income taxes from their wages, you are simply holding those funds to remit to the government. Those withheld amounts are not your company’s expense and are therefore not deductible by the business.