How to use the payroll calculator
- Choose salary or hourly and the pay frequency. For hourly workers, enter regular and overtime hours per week.
- Copy the employee's Form W-4 choices: filing status, the Step 2 checkbox and any amounts in Steps 3 and 4.
- Pick the work state and add pre-tax and after-tax deductions.
- Enter your SUTA rate to see the full employer cost. Switch to Annual to see the whole year with wage-base caps applied.
From gross to net: the order of operations
- Gross pay for the period.
- Pre-tax deductions. Section 125 health, HSA and FSA come out before every tax. Traditional 401(k) comes out before income tax but not FICA.
- Federal income tax, using the IRS Publication 15-T percentage method for 2020-and-later W-4s.
- FICA: 6.2% Social Security up to the wage base, and 1.45% Medicare on all wages, plus 0.9% above $200,000.
- State and local income tax, where it applies.
- After-tax deductions such as Roth 401(k), garnishments or union dues.
How federal withholding is worked out
The percentage method annualizes the paycheck and runs it through a table built from the tax brackets:
Annual wages = taxable pay × pay periods + Step 4(a) − Step 4(b)If the Step 2 box is unchecked, a standard allowance is subtracted ($8,600 for single and head of household, $12,900 for married filing jointly) and the standard table is used. If it is checked, the brackets are halved, because the employee is assumed to have another job taking up the lower brackets. The annual tax, minus Step 3 credits, is divided by the pay periods, and Step 4(c) extra withholding is added.
Example: $60,000 salary, paid biweekly, single, Texas
| Gross per paycheck | $2,307.69 |
| Federal income tax | $193.08 |
| Social Security (6.2%) | $143.08 |
| Medicare (1.45%) | $33.46 |
| Net pay | $1,938.07 |
The employer adds its own $143.08 and $33.46 of FICA, plus FUTA and SUTA until those wage bases are reached. Early in the year that's about $2,560 per paycheck in total.
State withholding in brief
Nine states have no tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. About a dozen use a flat rate, and the rest have brackets. Several cities and counties add their own tax on top (New York City, Philadelphia, Detroit, most of Maryland and Indiana, much of Ohio and Pennsylvania). This calculator estimates state tax but not local tax.
Mistakes that cause payroll trouble
- Treating a worker as a contractor when the IRS would say they are an employee.
- Using an old W-4, or not asking new hires to fill one in. With no W-4, withhold as single with no adjustments.
- Forgetting the employer half of FICA when budgeting for a hire.
- Missing federal deposit deadlines. Penalties start at 2% and climb quickly.
Once you have more than one or two employees, dedicated payroll software that files and deposits for you is usually worth the monthly fee. For contractors or your own self-employment income, use the self-employment tax calculator instead.