How to Calculate My Payroll Tax With Pretax 401(k) Contributions

by Emily Weller

Making regular pre-tax 401(k) contributions not only makes saving for retirement simpler, it also shaves money off of your tax bill right away. Determine the amount of federal tax you'll pay each pay period by determining your taxable income each paycheck after your contributions are accounted for. Doing this allows you to see the difference you'll pay in taxes based on differing amounts contributed to a 401(k), allowing you to make an informed decision about contributions.

Review the Form W-4 you submitted to your employer to see how many allowances you claimed. You may claim allowances for yourself, your dependent children and your spouse.

Look at table 5 in IRS Publication 15 (page 35) that lists the amount of withholding allowance permitted based on how frequently you are paid. At the time of publication, the withholding allowance for a person who is paid biweekly is $146.15, for example. Multiply this number by the number of exemptions you claimed on your W-4.

Subtract the amount of the allowance from your gross pay amount each pay period. For example, if you earn $1,500 biweekly and claim two allowances on your W-4, subtract $292.30 from $1,500 to end up with $1207.70.

Deduct the amount of your 401(k) contribution from the amount you figured in Step 3. If you decide to contribute 10 percent of your $1,500 biweekly pay, for example, you would subtract $150 from $1207.70 to end up with $1057.70.

Consult the appropriate tables in IRS publication 15 (pages 36 and 37) to determine the Federal income tax to be withheld based on how frequently you are paid. Table 2 lists tax for people paid biweekly. If your biweekly taxable income is $1057.70, and you are single, you will need to pay $129.50 at time of publication. You'll owe $33.40, plus 15 percent of the amount you earn over $417. In this example, you'd need to pay $33.40 plus $96.10.

Calculate the amount of Social Security tax you will need to pay each pay period. Any paychecks you receive before Feb. 29, 2012, should reflect a Social Security tax of 4.2 percent. After March 1, 2012, the rate increases to 6.2 percent. Multiply your taxable income by either 4.2 percent or 6.2 percent. In the example, you would either pay $44.42 (4.2 percent) or $65.58 (6.2 percent). Add this amount to the tax you will owe.

Determine the amount of Medicare tax you will need to pay each pay period. At the time of publication, the Medicare tax rate is 1.45 percent. Multiply your taxable income by 0.0145. In this example, you would owe $15.33 each biweekly pay period. Add this to the other tax amounts.

Tip

  • Don't forget to add the amount you will owe in state taxes when calculating your payroll taxes. State tax laws vary, so consult your state's department of revenue for information.

Items you will need

  • Form W-4
  • IRS Publication 15
  • Calculator

About the Author

Based in Pennsylvania, Emily Weller has been writing professionally since 2007, when she began writing theater reviews Off-Off Broadway productions. Since then, she has written for TheNest, ModernMom and Rhode Island Home and Design magazine, among others. Weller attended CUNY/Brooklyn college and Temple University.

Photo Credits

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