How to Calculate Taxes on a Paycheck (with Calculator)

It can be confusing to understand how much of your paycheck actually hits your bank account after taxes. Between federal tax, Social Security, Medicare, and possibly state or local taxes, your take-home pay is often lower than expected.

Let’s break it down and help you calculate how much you really keep!

🙋‍♀️ What Are Paycheck Taxes?

Every time you get paid, several types of taxes may be withheld from your gross pay:

• Federal Income Tax – based on your earnings and tax bracket
• Social Security Tax – 6.2% of your wages (up to an annual limit)
• Medicare Tax – 1.45% of your wages, with an extra 0.9% for high earners
• State Income Tax – varies depending on your state
• Other Deductions – retirement contributions, health insurance, etc.

⚙️ How to Estimate Your Taxes

Here’s a simple way to estimate paycheck taxes:

1. Start with your gross pay
2. Subtract federal tax (based on IRS tax tables)
3. Subtract Social Security and Medicare (7.65% total)
4. Subtract state and local taxes (if applicable)
5. Subtract benefits and deductions (e.g. 401k, health)

The result is your net (take-home) pay.

🔢 Example

Let’s say you earn $5,000/month and live in a state with no income tax:

• Federal income tax: $600
• Social Security: $310
• Medicare: $72.50
• 401k Contribution: $250

Take-home pay = $5,000 – $600 – $310 – $72.50 – $250 = $3,767.50

💡 Practical and Legal ways to reduce the taxes

💼 Contribute to a 401(k) or Traditional IRA

• Contributions to a 401(k) or traditional IRA are made pre-tax, reducing your taxable income.
• For 2025, you can contribute up to $23,000 to a 401(k) if you’re under 50 (or $30,500 if 50+).

🏥 Use a Health Savings Account (HSA) or Flexible Spending Account (FSA)

• HSA: Contributions reduce your taxable income and grow tax-free if used for medical expenses.
• FSA: Also lowers taxable income and can be used for healthcare or dependent care.

👶 Take Advantage of Dependent Care Benefits

• If your employer offers a Dependent Care FSA, you can contribute up to $5,000 tax-free for childcare expenses.

📚 Look for Employer-Provided Benefits

• Benefits like tuition reimbursement, transit/commuter benefits, and wellness programs can reduce taxable wages.

📝 Adjust Your W-4 Withholding

• If you’re overpaying taxes each paycheck, you can update your W-4 with fewer withholdings to boost your net pay.
• Use the IRS withholding calculator to help determine the right amount.

🧾 Claim All Available Tax Credits

• While credits won’t change paycheck withholding, they can reduce your year-end tax liability (and future withholding). Examples:
  • Earned Income Tax Credit (EITC)
  • Child Tax Credit
  • Saver’s Credit

🏡 Contribute to a Pre-Tax Commuter Plan

• If your employer offers a transit or parking benefit plan, your contributions come out before taxes.

👨‍⚕️ Review Insurance Premiums

• Premiums for medical, dental, or vision insurance may be pre-tax. Confirm you’re enrolled in these options to lower taxable income.