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Income Tax Calculator
We all freak out when it comes to calculating our income taxes and our paycheck withholding. It is very useful to know how to calculate your income tax. The income tax calculator above is a very useful tool for getting an estimate of how much of income tax you might have to pay on your income. It provides a breakdown of federal, state and other necessary components. However, it doesn’t provide details on how to calculate. Below example which provides details on how to calculate your income tax by hand. There are several components for calculating income taxes. Below are the components of income Taxes.
Components of Income Tax:
Marital Status:
Marital status is the most important indication of type of income tax filing. Based on marital status accountant knows if income tax filing will be jointly or individually. Along with filling jointly or individually there are also options such as married filing jointly and single filing jointly. Please talk t your account for professional Advise.
Federal Tax Rate:
Federal Tax rate is another major component in figuring out the income tax. Based on an individual’s income a person might fall within certain brackets. These brackets determine how much of tax an individual should pay. Below are the Income tax brackets for the year 2010.
Income Tax Bracket Filling Single (2010)
Income Tax Bracket Filling Jointly (2010)
State Income Tax:
Although federal income taxes are standard across all states, state income tax varies widely. Each of the fifty states has different tax bracket and different breakdown within those tax brackets for single and joint filing. Some states have additional tax line item for different type of taxes. For example, California charges a disability tax which is not charged by other states nor not mandated by federal government.
Medicare Withholding:
There is also a line item for Medicare withholding. Medicare withholding is mandated by federal government and it is 1.45% of total gross income of an individual.
Social Security Withholding:
Social security is another line item for income taxes. It is also mandated by government. Social security benefit is 6.20% of an individual’s income. It only applies till $106,800. Any income above $106,800.00 is social security tax free.
Example: The income is $125,000. Calculate the tax if filed in California single or for joint income
Calculation for Single Filing:
Step 1: Calculate Federal Income Tax
Since the gross income is $125,000 the federal tax bracket is 28% for single. Refer to Tax Bracket above form more details.
Federal withholding = $17,691.25 + (125,000 – 87,700) * .28 = $28,135.25
Step 2: Calculate the social security Tax
The social security tax is 6.2% of the gross income till $106,800. Since the income is $125,000 the social security tax is the maximum.
Social Security Tax = $6,621.60
Step 3: Calculate the Medicare tax
Medicare tax is 1.25% of gross income. It doesn’t have any income limit.
Medicare Tax = $125,000 * 1.25% = $1812.60
Step 4: Calculate the State Income Tax
Each State has a difference tax rate. Please refer to the Tax Brackets of your state for more information. For California $125,000 falls within 10.505% of the Tax Bracket. California also charges a disability insurance of 1.1% till income of $93,316.
California Income Tax = $2,372.20 + ($125,000 – 46,349) * 10.505% = $10,634.47
Disability Insurance = $93,316 * 1.1% = $1026.48
Step 5: Calculate the Net Income after Tax
Gross Annual Income--------$125,000.00
Federal Tax-------------------------28,135.25
Social Security Tax------------------6,621.60
Medicare Tax-------------------------1,812.50
State Income tax is----------------10,634.47
CA SDI---------------------------------1,026.48__
Net Income after Tax---------- $77,151.75
Calculation for Joint Filing
Step 1: Calculate Federal Income Tax
Since the gross income is $125,000 the federal tax bracket is 25% for joint filing. Refer to Tax Bracket above form more details.
Federal withholding = $21,437.5 + ($125,000 - $124,050) * 25% = $21.675
Step 2: Calculate the social security Tax
The social security tax is 6.2% of the gross income till $106,800. Since the income is $125,000 the social security tax is the maximum.
Social Security Tax = $6,621.60
Step 3: Calculate the Medicare tax
Medicare tax is 1.25% of gross income. It doesn’t have any income limit.
Medicare Tax = $125,000 * 1.25% = $1812.60
Step 4: Calculate the State Income Tax
Each State has a difference tax rate. Please refer to the Tax Brackets of your state for more information. For California $125,000 falls within 10.505% of the Tax Bracket. California also charges a disability insurance of 1.1% till income of $93,316.
California Income Tax = $2,372.20 + ($125,000 – 46,349) * 10.505% = $10,634.47
Disability Insurance = $93,316 * 1.1% = $1026.48
Step 5: Calculate the Net Income after Tax
Gross Annual Income -----------$125,000.00
Federal Tax ----------------------------21,675.25
Social Security Tax -------------------6,621.60
Medicare Tax --------------------------1,812.50
State Income tax is -------------------8,137.69
CA SDI -----------------------------------1,026.48__
Net Income after Tax-------------$85,727.22
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