Income Tax and Tax Relief calculator
This calculator will provide an estimate of how much Income Tax and National Insurance you may pay, based on your earnings. You can also use it to find out how much tax relief you could get on your pension contributions.
Simply enter your gross annual salary – which is the amount you get before Income Tax and National Insurance – and how much you pay into your pension scheme, annually. The calculator will then show your total annual Income Tax and National Insurance deductions, total pension contributions and how much you could be entitled to in tax relief.
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Try Prudential's free tool to calculate your salary after income tax, NI & pension contributions have been deducted. Find your rate of pension tax relief.
Use this calculator to estimate the actual paycheck amount that is brought home after taxes and deductions from salary. It can also be used to help fill steps 3 and 4 of a W-4 form. This calculator is intended for use by U.S. residents. The calculation is based on the 2020 tax brackets and the new W-4, which in 2020, has had its first major change since 1987.
Using old W-4 (before the 2020 update)
If you or your company are still using the old W-4 (before the 2020 update), please use the following.
Before-Tax vs After-Tax Income
In the US, the concept of personal income or salary usually references the before-tax amount, called gross pay. For instance, it is the form of income required on mortgage applications, is used to determine tax brackets, and is used when comparing salaries. This is because it is the raw income figure before other factors are applied, such as federal income tax, allowances, or health insurance deductions, all of which vary from person to person. However, in the context of personal finance, the more practical figure is after-tax income (sometimes referred to as disposable income or net income) because it is the figure that is actually disbursed. For instance, a person who lives paycheck-to-paycheck can calculate how much they will have available to pay next month’s rent and expenses by using their take-home-paycheck amount.
Figures entered into “Your Annual Income (Salary)” should be the before-tax amount, and the result shown in “Final Paycheck” is the after-tax amount (including deductions).
|Daily||Pay every working day. Uncommon for salaried jobs.|
|Weekly||Pay each week, generally on the same day each pay period.|
|Bi-weekly||Pay every other week, generally on the same day each pay period.|
|Semi-monthly||Pay on specified dates twice a month, usually on the fifteenth and thirtieth.|
|Monthly||Pay on a specified day once a month.|
|Quarterly||Pay 4 times a year. Uncommon.|
|Semi-annually||Pay 2 times a year. Uncommon.|
|Annually||Pay once a year. Uncommon.|
It is important to make the distinction between bi-weekly and semi-monthly, even though they may seem similar at first glance. For the purposes of this calculator, bi-weekly payments occur every other week (though in some cases it can be used to mean twice a week). Also, a bi-weekly payment frequency generates two more paychecks a year (26 compared to 24 for semi-monthly). While a person on a bi-weekly payment schedule will receive two paychecks for ten months out of the year, they will receive three paychecks the remaining two months.
In general, employees like to be paid more frequently due to psychological factors, and employers like to pay less frequently due to the costs associated with increased payment frequency. Certain states have specific pay frequency requirements, but federal laws only dictate that the payment schedule be predictable. An employer cannot pay an employee bi-weekly one month, then monthly the next. As a side note, pay periods have no effect on tax liability.
The following are the IRS definitions of each filing status:
|Single||Not married, divorced, or legally separated according to state law.|
|A married couple filing a return together.|
|If a married couple decides to file returns separately, each of their filing statuses should generally be Married Filing Separately.|
|Only applies to anyone not married who has paid more than half the cost of maintaining a home for themselves and a qualifying person.|
|Qualified Widow||This filing status requires a dependent child and allows for the retention of the benefits associated with the “Married Filing Jointly” status for two years after the year of the spouse’s death.|
The most commonly chosen options will be “Single,” “Married Filing Jointly,” and “Head of Household.” It is possible for a single person to claim another filing status. For instance, someone who is “Single” can also file as “Head of Household” or “Qualifying Widow” if the conditions are met. Given these options, it is possible for a taxpayer to evaluate their options and choose the filing status that results in the least taxation. As an aside, tax on interest, investment return, bonuses, earnings from gambling, and commissions can also be withheld.
Deductions can lower a person’s tax liability by lowering the total taxable income. The deductions are categorized into three inputs above.
1. Pretax deductions withheld:
These are the deductions to be withheld from the employee’s salary by their employer before the salary can be paid out, including 401k, the employee’s share of the health insurance premium, health savings account (HSA) deductions, child support payments, union and uniform dues, etc.
2. Deductions not withheld:
These are the deductions that will not be withheld by the employer but can be subtracted from taxable income, including IRA contributions, student loan interest, qualified tuition and education-related fees up to $4,000, etc.
3. Itemized deductions:
These are expenditures on eligible products, services, or contributions that may be subtracted from taxable income, including qualified mortgage interest, state and local income plus either property or sales taxes up to $10,000, charitable donations, medical and dental expenses (over 10% of adjusted gross income), etc. For those who do not use itemized deductions, a standard deduction can be used. The standard deduction dollar amount is $12,400 for single households and $24,800 for married couples filing jointly for the tax year 2020. Taxpayers can choose either itemized deductions or the standard deduction, but usually choose whichever results in a higher deduction, and therefore lower tax payable.
To find an estimated amount on a tax return instead, please use our Income Tax Calculator. Almost all employers automatically withhold taxes from their employees’ paychecks (independent contractors and self-employed individuals need to submit quarterly or yearly tax payments independently), as it is mandatory by law. Evasion of tax can result in serious repercussions such as a felony and imprisonment for up to five years.
Federal Income Tax
The federal income tax is a progressive tax, meaning it increases in accordance with the taxable amount. The more someone makes, the more their income will be taxed as a percentage. In 2020, the federal income tax rate tops out at 37%. Only the highest earners are subject to this percentage.
Federal income tax is usually the largest tax deduction from gross pay on a paycheck. It is levied by the Internal Service Revenue (IRS) in order to raise revenue for the U.S. federal government. While individual income is only one source of revenue for the IRS out of a handful, such as income tax on corporations, payroll tax, and estate tax, it is the largest.
State Income Tax
Similar to how federal income taxes generate revenue for federal government, state income taxes are imposed in order to generate revenue for state governments. While almost everyone is subject to federal income tax, not all states have an income tax. 33 states as well as the District of Columbia have a progressive system. The state with the highest maximum state income tax rate is California at 13.30%. Eight states have flat rates: Colorado, Illinois, Indiana, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah. Seven states, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, impose no income tax. Tennessee and New Hampshire fall into a gray area; while they don’t impose a tax on income, there is a state tax on interest and dividends. New Hampshire’s tax rate is 5%, while Tennessee’s is 6%.
As an aside, unlike the federal government, states often tax municipal bond interest from securities issued outside a certain state, and many allow a full or partial exemption for pension income.
Locality/City/Municipal Income Tax
Most U.S. cities and counties do not impose this tax, but some do, affecting approximately 1/10 of the total U.S. population. In general, the highest city tax rates in the US are centered around large cities such as New York City. Both state and local taxes are normally deductible on federal tax returns, so long as they’re itemized.
Also known as payroll tax, FICA refers to Social Security tax and Medicare tax. Whether a person is an employee or an independent contractor, a certain percentage of gross income will go towards FICA. In the case of employees, they pay half of it, and their employer pays the other half. Independent contractors or self-employed individuals pay the full amount because they are both employee and employer. This is one of the reasons why independent contractors tend to be paid more hourly than a regular employee for the same job.
Social Security is a federal government system in the U.S. that provides monetary benefits to retired, unemployed, or disabled people, paid for largely by society. The Social Security tax rate is 6.20% (total including employer contribution: 12.40%) up to an annual maximum of $137,700 for 2020 ($132,900 for 2019). For more information about or to do calculations involving Social Security, please visit the Social Security Calculator.
Medicare is a single-payer national social insurance program administered in the U.S. by the federal government. Its main purpose is to provide health insurance to those aged 65 and older. Tax rates are dependent on income brackets. Medicare tax rate is 1.45% (total including employer contribution: 2.90%) for incomes below the threshold amounts shown in the table. Incomes above the threshold amounts will result in an additional 0.45% (total including employer contribution: 0.9%) on top of the regular Medicare tax rate.
|Filing Status||Threshold Amount|
|Married filing jointly||$250,000|
|Head of household||$200,000|
|Qualifying widow(er) with dependent child||$200,000|
Take Home Pay
Only after all of these factors are accounted for can a true, finalized take-home-paycheck be calculated. Figuring out this final figure can be helpful. For instance, people often overestimate how much they are able to spend based on an inflated pre-tax income figure. Knowing the after-tax amount of a paycheck and using it to budget can help rectify this issue. For more comprehensive and detailed calculations regarding budgeting, try our Budget Calculator; just note that it also utilizes a before-tax input for income.
How to Increase a Take Home Paycheck
The easiest way to achieve a salary increase may be to simply ask for a raise, promotion, or bonus. However, this is assuming that a salary increase is deserved. For instance, an employee is in a legitimate position to ask for a raise or bonus if their performance exceeded original expectations, or if the company’s performance has noticeably improved, due in part to the employee’s input. If internal salary increases are not possible, which is common, try searching for another job. In the current job climate, the highest pay increases during a career generally happen while transitioning from one company to another. For more information about or to do calculations involving salary, please visit the Salary Calculator.
Reevaluate Payroll Deductions
Sometimes, it is possible to find avenues to lower the costs of certain expenses such as life, medical, dental, or long-term disability insurance. For instance, someone who is healthy with no major diseases or injuries can reconsider whether the most expensive top-of-the-line health insurance is necessary. In addition, each spouse’s company may have health insurance coverage for the entire family; it would be wise to compare the offerings of each health insurance plan and choose the preferred plan.
Open a Flexible Spending Account
A flexible spending account (FSA) is a tax-advantaged account that is usually offered by employers to their employees so they have the ability to set aside some of their earnings. Because contributions into an FSA are deducted from paychecks during payroll before income taxes, less income will be subject to taxation. While it won’t show up as an immediate increase in a take-home-paycheck, theoretically, any employee who is going to pay for qualified expenses in the future anyway can have more of their “paycheck” taken home using an FSA instead of as disposable income. The most common FSAs used are health savings accounts or health reimbursement accounts, but other types of FSAs exist for qualified expenses related to dependent care or adoption.
According to the Fair Labor Standards Act (FLSA), non-exempt employees that are covered must receive overtime pay for hours worked over 40 in a workweek at a rate not less than one and a half times their regular rate of pay. Due to this, if allowed, non-exempt employees have the opportunity for a bigger paycheck by working over 40 hours per week. While most companies tend to set their overtime rates at the minimum, which is time and one-half, companies that provide an overtime rate of two times the regular rate are not out of the ordinary. Exempt employees, otherwise known as salaried employees, generally do not receive overtime pay, even if they work over 40 hours. For more information about overtime, non-exempt or exempt employment, or to do calculations involving working hours, please visit the Time Card Calculator.
Cash Out PTO
Traditionally, most employers would offer employees vacation days, paid time off, or paid leave. Nowadays, employers tend to roll everything into one concept called paid time off (PTO). In some cases, unused PTO at the end of the year can be “exchanged” for their equivalent financial value. If a company does allow the conversion of unused PTO, accumulated hours and/or days can then be exchanged for a larger paycheck.
Temporarily Pause 401(k) Contributions
In general, it is wise to stop contributing towards retirement when facing immediate financial difficulty. However, depending on the severity of the financial situation, a case could be made for at least contributing as much as possible towards what an employer will match for a 401(k).
Free calculator to find the actual paycheck amount taken home after taxes and deductions from salary, or to learn more about income tax in the U.S. Can be used by salary earners, self-employed, or independent contractors. Also explore hundreds of other calculators addressing topics such as tax, finance, math, fitness, health, and many more.