Published in: Tax Tips

United States (US) Income Tax Caluclator

Author Zeeshan

Published on: June 25, 2025

Unraveling Your Paycheck: A Salaried Person’s Guide to US Income Tax

For salaried employees in the USA, understanding how your income tax is calculated can feel like navigating a maze. While your employer handles withholdings throughout the year, knowing the basics empowers you to make informed financial decisions and avoid surprises come tax season.

Let’s break down the key components of US income tax for salaried individuals.

1. Gross Pay vs. Taxable Income: The Starting Point

Your journey begins with your gross pay – your total earnings before any deductions. However, you don’t pay tax on your entire gross pay. The IRS allows for certain deductions that reduce your taxable income.

Common deductions that impact salaried employees include:

• Pre-tax contributions to benefits: This often includes health insurance premiums, contributions to a 401(k) or other employer-sponsored retirement plans, and sometimes even flexible spending accounts (FSAs) or health savings accounts (HSAs). These amounts are subtracted from your gross pay before taxes are calculated.
• Standard Deduction vs. Itemized Deductions: Most taxpayers choose the standard deduction, which is a fixed amount based on your filing status. For 2024, the standard deduction is:
  • Single: $14,600
  • Married Filing Jointly: $29,200
  • Head of Household: $21,900
  • If your eligible itemized deductions (like certain medical expenses, state and local taxes up to $10,000, or mortgage interest) exceed the standard deduction, you might choose to itemize to reduce your taxable income further.

The formula so far: Gross Pay – Pre-tax Deductions – (Standard Deduction OR Itemized Deductions) = Taxable Income

2. Federal Income Tax: The Progressive System

The US federal income tax system is progressive, meaning higher earners pay a higher percentage of their income in taxes. This is done through tax brackets. Your taxable income falls into different “brackets,” and each portion of your income is taxed at the rate for that bracket.

For example, let’s look at the 2024 federal income tax brackets for a single filer:

Important Note: You don’t pay the highest rate on your entire income. Only the portion of your income that falls within a higher bracket is taxed at that higher rate.

To calculate your federal income tax, you’ll apply these rates to your taxable income based on your filing status (Single, Married Filing Jointly, Married Filing Separately, Head of Household).

3. FICA Taxes: Social Security and Medicare

Beyond federal income tax, salaried employees also pay FICA taxes (Federal Insurance Contributions Act), which fund Social Security and Medicare. These are generally withheld from your paycheck automatically.

• Social Security: 6.2% of your gross wages, up to an annual wage base limit ($168,600 for 2024). Once you earn above this limit, Social Security tax is no longer deducted for the rest of the year.
• Medicare: 1.45% of your gross wages, with no wage limit. High-income earners may also be subject to an additional 0.9% Medicare tax.

Your employer also contributes a matching amount for both Social Security and Medicare.

4. State and Local Income Taxes

This is where things get a bit more complex. Most states and many local governments also levy income taxes.

• State Income Tax: State income tax rates vary significantly. Some states have a flat tax rate, while others have progressive bracket systems similar to the federal government. A few states (like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) have no state income tax at all.
• Local Income Tax: In some cities, counties, or specific districts, you might also be subject to local income taxes.

You’ll need to check the specific tax laws for your state and locality of residence and where you work to understand these additional taxes.

5. Tax Credits: Directly Reducing Your Bill

While deductions lower your taxable income, tax credits directly reduce the amount of tax you owe, dollar for dollar. This makes them incredibly valuable.

Some common tax credits for individuals include:

• Earned Income Tax Credit (EITC): A refundable credit for low-to-moderate-income workers.
• Child Tax Credit: For eligible parents with qualifying children.
• Child and Dependent Care Credit: For expenses related to childcare while you work or look for work.
• Education Credits: For qualifying higher education expenses.
• Retirement Savings Contributions Credit (Saver’s Credit): For eligible individuals who contribute to retirement accounts.

The IRS website (irs.gov) is an excellent resource for detailed information on current tax laws, brackets, deductions, and credits.

Simplified Calculation Steps:

To get a general idea of your income tax, you can follow these simplified steps:

1. Determine your Gross Annual Income.
2. Subtract Pre-tax Deductions: (e.g., 401(k) contributions, health insurance premiums). This gives you your Adjusted Gross Income (AGI).
3. Subtract your Standard Deduction (or Itemized Deductions if higher): This gives you your Taxable Income.
4. Calculate Federal Income Tax: Apply the federal tax bracket rates to your taxable income based on your filing status.
5. Calculate FICA Taxes: Add 6.2% for Social Security (up to the limit) and 1.45% for Medicare to your gross wages.
6. Calculate State and Local Income Taxes: Refer to your state and local tax authority websites for applicable rates and rules.
7. Subtract any eligible Tax Credits from your total calculated tax.

Pro-Tip: Payroll calculators available online (like those from PaycheckCity or ADP) can provide a much more precise estimate of your take-home pay by factoring in all these elements.

Calculating your income tax can be complex, but understanding the fundamental concepts of gross pay, taxable income, deductions, tax brackets, FICA taxes, and tax credits is a great starting point. If your financial situation is complicated, or you want to maximize your tax savings, consider consulting with a qualified tax professional.