How to Calculate Taxes From the Gross or Hourly Rate

By Grace Ferguson
Taxes are deducted from gross pay.

check in macro image by Alexey Klementiev from

If you are paid hourly, your gross pay is based on your hourly rate and the number of hours you work within the pay period. Specifically, it is your pay before taxes are withheld. Consequently, taxes are withheld from gross income. As an employee, you are required to pay federal income tax, as well as Social Security and Medicare tax (FICA taxes), unless you qualify for exempt status. Each withholding tax has its own calculation rate.

Learn how to determine your gross pay. Suppose you work 80 hours in the biweekly pay period and earn $12/hour. Calculation: 80 hours x $12 = $960 biweekly gross pay.

Most salary workers receive a fixed salary each pay period. Suppose your annual salary is $53,000, paid weekly. Calculation: $53,000 / 52 pay period weeks = $1,019.23 weekly gross pay.

Withhold federal income tax from gross pay. Consult the IRS Circular E for the related tax year to figure federal income tax. You also need your filing status and number of exemptions for the corresponding tax year (see your Form W-4, if necessary). The Circular E has the withholding tax tables you need to compute the tax.

Suppose your hourly rate is $11 and you claim married/one. You worked 40 regular hours during the weekly pay period. Your gross pay would be 40 hours x $11 = $440. According to page 43 of the 2010 Circular E, your weekly federal income tax withholding would be $11.

Suppose your gross semimonthly salary is $1,050 and you claim single/zero. According to page 49 of the 2010 Circular E, your semimonthly federal income tax withholding would be $111.

Calculate Social Security and Medicare taxes from gross pay. Determine the former at 6.2 percent of your gross income and the latter at 1.45 percent. Suppose your gross biweekly income is $800.

Social Security calculation: $800 x .062 = $49.60. Annual Social Security withholding stops when you have reached the yearly wage limit of $106,800.

Medicare calculation: $800 x .0145 = $11.60. Medicare withholding occurs from all gross income.

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.