How to calculate payroll taxes

how to calculate payroll taxes

Things You'll Need

Instructions

Check your state tax instructions to see if your state allows the deduction pretaxed. Not all states allow you to deduct the 401k from your present income. The easiest way to find out if your state and local taxes use the money withdrawn as a deduction from your income is to check a tax booklet. If you use the AGI, adjusted gross income, from your federal taxes as a basis for your state and local income tax, you automatically get the 401k tax deduction since it lowers the federal AGI.

Find the percentage you deduct for your state and local income tax. If your state allows the deduction, then you'll need to know how much they allow. Most states have a level percentage, as do local entities. Find out how much it is by dividing the amount withheld from a previous paycheck by the gross amount of the check. Round to the nearest three places after the decimal.

Estimate your federal tax bracket. You can use the same logic for federal as you do for your state tax and divide the amount withheld by the gross taxes. This gives you a percentage. The actual federal tax is on a sliding scale that increases in steps the more you make. For instance, tax on the first $300 might be 15 per cent but increase

to 20 percent on the next $200.

Subtract the amount you want to withhold from your gross income. If you selected a percentage, multiply the percentage times your gross income and then subtract that amount. Use the number you estimated for state and local tax if your state uses the federal AGI as your tax base and multiply it times your income. Do the same for the federal withholding. These are the new amounts of federal and state tax that you'll show. Subtract these amounts, the 401k deduction and the other deductions from your paycheck to find your new net amount.

Use a more accurate method that's much simpler to find the amount of federal tax removed after you deduct for a 401k. There are online calculators that help you find the difference in your federal tax. See Resources below for the link.

Use the online calculator for 457, 401k and 403b plans. You simply need to know the number of exemptions you take. They're called "allowances" on the chart. If you don't get a state or local tax break, put 0 percent in the box. Use 0 for your current 401k deduction and the percent you want to contribute for the new side. It goes on the line that says "457." Hit "Calculate," and the amount of tax withheld will show at the bottom of the chart.

Source: ehow.com

Category: Bank

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