How to get from Gross to Net
Gross Payroll
-Minus Pre-Tax Deductions
-Minus Federal Withholding And FICA Tax (Social Security And Medicare)
-Minus State Income Tax Withholding And Local Taxes
-Minus Post-Tax Deductions
=Equals Net Paycheck
FEDERAL WITHHOLDING
Federal Withholding is essentially a payment toward the employee’s individual tax bill for the year. Form W-4 is used to estimate the amount of withholding required for that employee based on earnings. That amount is then withheld each payroll and remitted to the IRS by the employer.
FICA: SOCIAL SECURITY
For 2015, the Social Security rate for an employee is 6.2% of taxable earnings up to the 2015 FICA limit of $118,500.
FICA: MEDICARE
For 2015, the Medicare rate for an employee is 1.45% of taxable earnings. In addition, as of 2013, individuals with earned income of more than $200,000 ($250,000 for married filing jointly) pay an additional 0.9 percent on the amount above those thresholds.
STATE INCOME TAX WITHHOLDING
There Are Seven States That Don’t Have State Income Tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, And Wyoming.
There Are Two States That Tax Only Dividend And Interest Income: Tennessee And New Hampshire.
All other states have state income tax and require State Income Tax Withholding from employee’s pay. Also, there are some local taxes that require withholding in various locations.