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Guesstimating take-home pay from a job

Guesstimating take-home pay from a job

Remember your first job and how excited you were to be making all that money? And then remember the disappointment when you got your first check, and it was dramatically different from what you’d expected? Or how about the happiness you felt when you got a raise, and then the sinking feeling you got when you realized that the 4% raise didn’t result in a 4% increase in your check? Wouldn’t it be nice to be able to figure out how much your check was likely to be before you got it?

Of course, taxes and other withholdings are the reasons we get less in our checks than our hourly rate or salaried amount, so figuring out those can eliminate unpleasant surprises. One of the easiest ways to do so is to use a calculator from Paycheck City. Input the required information, and the calculator will provide a pretty good estimate of your resulting take-home pay.

Alternatively, you can figure things out yourself. You’ll need to know what tax bracket you are likely to be in. If you are in the United States, you can find this by going to irs.gov and searching for “tax rate schedules”. Sometimes these schedules are listed at the back of the instructions for Form 1040, so you can also find them by searching irs.gov for “Form 1040 instructions”. Once you find the correct schedule, find your filing status and estimated gross income and do the calculations to project your federal tax. You’ll need to know your state and local tax rates as well (if you are taxed by those areas) and the amounts withheld for Social Security (FICA) and Medicare. If you have anything else withheld (such as for insurance, retirement plans, or flexible spending) you’ll need to subtract those as well. It can get pretty confusing.

According to Wikipedia, “The National Bureau of Economic Research has concluded that the combined federal, state, and local government average marginal tax rate for most workers to be about 40% of income.” That sounds about right to me. The important thing to remember is not to plan on keeping your entire check! I always wait to see what my check will actually be before making plans for the money. Contacting the IRS, a professional, or your HR department with questions or concerns is important too.

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This post is part of a series. See what everyone should know about personal finance for links to additional posts on the subject.

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