How to Calculate Your Paycheck: A Simple Step‑by‑Step Guide

1. Determine Your Gross Income

The gross pay is the amount you earn before any deductions. It depends on whether you are an hourly or salary employee.

• Hourly workers: Multiply your hourly rate by the total hours worked in the pay period. Add overtime pay (usually 1.5× the regular rate) for any hours over 40 per week.
• Salaried employees: Divide your annual salary by the number of pay periods in a year (26 for bi‑weekly, 24 for semi‑monthly, or 12 for monthly).

2. Subtract Mandatory Taxes

Federal, state, and local taxes are taken out of your gross pay. Use the latest tax tables or your employer’s payroll software to estimate:

• Federal income tax – based on your filing status and allowances.
• Social Security tax – 6.2% of wages up to the annual wage base.
• Medicare tax – 1.45% of all wages (plus an extra 0.9% for high earners).

Many states also levy a state income tax, and some cities have local taxes.

3. Account for Pre‑Tax Deductions

These reduce your taxable income, so they are subtracted before taxes are calculated:

• Health, dental, and vision insurance premiums
• Retirement contributions (e.g., 401(k) or 403(b) plans)
• Flexible Spending Account (FSA) or Health Savings Account (HSA) contributions

4. Subtract Post‑Tax Deductions

These are taken after taxes and do not affect your tax liability:

• Union dues
• After‑tax retirement contributions
• Garnishments or loan repayments

5. Calculate Your Net Pay

The final amount you receive—the net pay—is calculated as:

Net Pay = Gross Pay – (Pre‑Tax Deductions + Taxes) – Post‑Tax Deductions

For example, if you earn $2,000 gross, have $300 in pre‑tax deductions, $350 in taxes, and $50 in post‑tax deductions, your net pay would be $1,300.

6. Use an Online Paycheck Calculator

To simplify the process, input your salary, pay frequency, and deduction details into a reputable paycheck calculator. This tool quickly confirms your manual calculations and helps you spot errors.

Conclusion

Understanding how to calculate your paycheck empowers you to verify payroll accuracy, plan your budget, and make informed financial decisions. By breaking down gross earnings, mandatory taxes, and both pre‑ and post‑tax deductions, you can confidently determine the exact amount that lands in your bank account each pay period.

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