There are two types of income involving payroll processing: gross income and net income. Your gross income is the amount you actually earn before taxes and other deductions, if applicable. Your net income or also known as take-home pay, as the name suggests, is the total amount you’re left with after these reductions.
When processing payroll, employers make sure that the taxes that you’re obligated to pay are taken out of your paycheck. This helps employees save time as they aren’t required to pay these taxes directly by themselves like self-employed individuals do.
Calculate take home pay
Calculating take home pay is fairly simple. As long as you know what’s withheld from your gross income, you can calculate your take home pay with easy steps. All you need to know is your gross pay and what’s taken out of it.
There are a few things that are mandatory for every worker in the United States to pay. These are Social Security and Medicare taxes. The Social Security tax rate is 6.2 percent, and the Medicare tax is 1.45 percent, totaling them at 7.65. With that said, for every $100 you earn, you’ll pay $76.5 in these taxes. The purpose of these taxes is to fund Social Security and Medicare benefits, which you may need at one point in your life.
How to find how much tax is taken out of paycheck?
Seeing how much tax is withheld from your income is easy. Take a look at your pay stub, the documentation that’s given to you along with your paycheck. Your pay stub summarizes the income you earned and the taxes withheld from this income. It’s possible that your paycheck also shows the income and tax withheld.
Are states income taxes withheld from my pay?
State income taxes are just like federal income taxes. Unless your state doesn’t tax wages, your employer will withhold state income taxes and pay them on your behalf every pay period. The take home pay of taxpayers that work in states that don’t tax wages will consist of income that’s after Social Security, Medicare, and federal income taxes. So, if you work in a state that taxes your income, yes, they are withheld from your wages.