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Payroll Deductions Calculator

Updated Dec 15, 2023

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Whether you’re an employer running payroll or a W-2 employee who wants to better understand where your paycheck is going, you should understand what state, federal and benefits-related payroll deductions are coming out of each paycheck. Knowing this information beforehand helps you better plan your personal or business finances and create a budget that accounts for any tax obligations you may have.

You can use our payroll deductions calculator to calculate your employees’ take-home pay accurately. By using this tool, you can gain insight into your financial situation and ensure that your deductions are in line with your expectations.

Key terms when using the payroll deductions calculator

When using the payroll deductions calculator, it’s essential to familiarize yourself with these terms.

Year-to-date earnings

The total income earned from the beginning of the calendar year until the present.

Filing status

Your tax filing status, such as single, married or head of household, affects your tax withholding.

Pay period

The frequency at which you receive your pay, such as weekly, biweekly or monthly.

Credit for children under the age of 17

Tax credits provided to taxpayers for each qualifying child under the age of 17.

Credit for other dependents

Tax credits available for dependents who do not qualify for the child tax credit.

Two jobs or spouse works

Indication if you have multiple jobs or if your spouse is also employed. Both of these affect your tax withholding.

Other income (not from jobs)

Any additional income not related to your primary job.

Other deductions

Nontax-related deductions, such as union dues or health care premiums.

Gross pay

Your total income before any deductions or taxes are applied.

401(k)/403(b) plan withholding

Contributions to retirement plans that are deducted from your paycheck before taxes.

Employee-paid health insurance

The portion of health insurance premiums you pay as an employee.

State and local taxes

Taxes imposed by your state and local governments. Not every state or jurisdiction imposes taxes on residents’ income and those that do may have varying tax rates. This is important if you live in one state but work in another or if you employ people across multiple states.

Other pretax deductions

Deductions that reduce your taxable income before calculating taxes.

Post-tax deductions

Deductions applied after calculating taxes on your income.

Post-tax reimbursements

Reimbursements provided to you after tax deductions have been calculated.

Social Security tax

A federal payroll tax that funds the Social Security program.

Medicare tax

A federal payroll tax that funds the Medicare program.

Federal tax withholding calculations

The amount of federal income tax withheld from your paycheck based on your tax status and other factors.

What are payroll deductions?

Payroll deductions are specific amounts of money subtracted from an employee’s gross pay before they receive their net paycheck. These deductions are withheld to pay various taxes, garnishments and benefits.

Withholdings can include income and Social Security taxes, retirement contributions, health insurance coverage and other deductions that vary based on individual circumstances and employer policies.

Pretax vs. post-tax deductions

Pretax deductions are subtracted from employee paychecks before taxes are withheld. Since these are not included in gross pay, pretax deductions reduce the amount of taxable income (and subsequently, the amount of money to be paid to the government). Common pretax deductions employees can opt into include health and life insurance and pretax retirement plans, such as a 401(k).

Post-tax deductions are subtracted from employee paychecks after any necessary taxes have been withheld. Since these reduce net pay instead of gross pay, post-tax deductions do not lessen taxable income or tax burden. Roth individual retirement account retirement plans, union dues and wage garnishments are standard post-tax deductions while employees can opt out of many post-tax deductions, wage garnishments are mandatory.

What is the difference between gross payroll and net payroll?

Gross payroll is the total amount of money earned by an employee before any deductions or taxes are taken out and represents the employee’s total income. Net payroll, colloquially known as take-home pay, is the amount of money an employee receives in their paycheck after all deductions and taxes have been subtracted from their gross pay.

Calculating gross payroll vs. net payroll

The method for calculating gross payroll varies for salaried vs. hourly employees:

  • For salaried employees: Gross payroll equals the annual salary, divided by the number of pay periods each year. (The number of pay periods will vary based on whether the pay schedule is weekly, biweekly or monthly.)
  • For hourly employees: Gross payroll equals the hourly rate times the number of hours worked in a given pay period. If applicable, overtime pay must also be included.

Once you have your gross payroll, you can calculate your net payroll with the following steps:

  1. Deduct any pretax contributions from your gross payroll.
  2. Withhold any necessary taxes, including federal and state/local taxes.
  3. If any court-ordered payments are applicable, garnish necessary wages.

How does payroll software help manage payroll deductions?

Payroll software plays a crucial role in managing payroll deductions efficiently. It automates the calculation and deduction of taxes, retirement contributions and other deductions. This ensures compliance with tax laws and regulations while simplifying the payroll process for employers and employees.

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