How to Calculate Pay Difference Taxes

By Angela M. Wheeland
A few simple calculations will determine the difference between gross and net pay.
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If you are an employee, your employer must withhold several taxes from your paycheck. These taxes include FICA taxes (Social Security and Medicare), federal taxes and, depending on the state in which you reside, state taxes. These taxes will reduce your gross income, resulting in a smaller paycheck. You can calculate the taxes that your employer will withhold from your paycheck and determine the difference between gross pay and net pay. When you are preparing a budget, it is important to know the exact size of your paycheck.

Gross Income

Your gross income is your salary or wages before taxes. Generally, you can multiply your hourly wage by the number of hours worked in a week. If you worked more than 40 hours, your employer must pay you 1.5 times your hourly wage for each hour over 40. For example, your hourly wage is $10 an hour and you worked 43 hours. Your gross income for the week is $445 (($10 x 40) + (3 x $15)).

Social Security Taxes

As of the date of publication, the federal tax rate for Social Security taxes is 4.2 percent of the first $106,800 in wages. If your total income for the year is less than $106,800, multiply your gross income by the Social Security tax rate to determine the Social Security taxes your employee will withhold from your paycheck. Using the previous example, your Social Security tax is $18.69 ($445 x .042).

Medicare Taxes

As of the date of publication, the federal tax rate for Medicare taxes is 1.45 percent. Multiply your gross income by the Medicare tax rate to determine the Medicare taxes your employee will withhold from your paycheck. Using the previous example, your Medicare tax is $6.45 ($445 x .0145).

Federal and State Taxes

Determine your federal taxes using the tax table on IRS Publication 15. Many factors determine the amount of federal taxes that your employee will withhold from your paycheck. The information you provided on your W-4 determines which tax bracket your employer will use to calculate your federal taxes. You must know whether you claimed married or single and the number of exemptions claimed on your W-4 form. For example, if you claim married and two exemptions, your federal tax on $445 is $15. Consult with your state's Department of Revenue to determine the tax rate or procedure to calculate your state taxes, if applicable.

Net Pay

Your net pay is the difference between gross pay and your pay after taxes are withheld from your check. To calculate the amount of your paycheck, subtract each tax from your gross income. Using the previous example and assuming no state tax is withheld, your net pay is $404.86 ($445 - $18.69 - $6.45 - $15). The difference between your gross pay and net pay is $40.14 ($445 - $404.86).

About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.