How to Calculate Your Federal Taxable Income From Your Last Pay Stub
Taxes are a complete mystery to most people. It’s understandable when you realize that the tax code is thousands of pages long.
One of the most challenging things to do is to figure out how much federal income tax is taken out of your paycheck. You can figure out that you have 6.2% of your taxable wages is held for Social Security and 1.45% is withheld for Medicare.
What about your federal income taxes?
If you want to predict how much your take-home pay will be, check out this guide to calculate your federal taxable income.
What are Taxable Wages?
Taxable wages aren’t the same as your actual income. The IRS allows for deductions on your income to determine what your taxable income is.
For example, there are some line items on your pay stub that are subtracted out of your actual income. These are things like health care premium payments and retirement contributions.
For example, let’s say that you made $1000 in the pay period. You contribute $75 to your health care premiums and another $100 to your retirement plan. Your taxable wages are then $825.
Over the course of the year, that can make a big difference in your tax bracket.
Keep in mind that not retirement plans are included in this deduction. There are some retirement programs, like some IRAs that don’t count because you don’t pay taxes on them when you take the withdrawals in retirement.
The ones that are pre-tax contributions will require that you pay taxes on them when you start to withdraw the funds.
How Taxable Income is Taxed
There are a lot of factors that go into calculating how much you’re taxed. Your taxable income amount, your tax bracket, your tax filing status, and the number of allowances you put on your W-4 Form will determine your income tax rate. You can find a list of the tax rates and corresponding filing statuses for 2020 here.
The best thing you can do is to use a program that will automatically calculate your withholding, such as a pay stub maker. That will take into account your health and retirement contributions and then determine your federal tax withholding.
You can use that figure to determine how your taxed.
Understanding Taxable Wages
There is so much to the tax code, figuring out your taxes can be a nightmare. You have to make sure that you understand the difference between taxable wages and your actual income.
Your taxable wages are used to determine your income tax rate, along with several other factors. Knowing all of this can help you make sure that you’re withholding enough taxes so you don’t owe in April.
You also don’t want to pay too much because you’re giving the government a sizable loan that’s free of interest. You want to get it just right.
Check out this site often for more great tech news and tips.
