How to Calculate Income Tax & Social Security Tax

by Jessica Kent; Updated September 26, 2017
The calculations for Social Security and Medicare taxes can be derived from the IRS tax tables.

Everyone must pay personal income and Social Security taxes. Personal income taxes are dependent on many variables, including filing status, number of dependents, sources of income, itemized deductions and withholding rates. Social Security and Medicare taxes comprise the Federal Insurance Contributions Act tax, commonly referred to as FICA. Certain income items are not subject to personal income tax, but are subject to FICA. For example, pretax contributions to your retirement plan and employer paid adoption expenses are not subject to personal income taxes, but are taxed at Social Security and Medicare rates. FICA is a tax for both the employee and the employer. It's a different situation for the self-employed.

Items you will need

  • Most recent pay stub
  • Interest and dividend income documents
  • Documents regarding the sale of stock
  • Schedule C income
  • Estimates for other sources of income
  • Estimates for itemized deductions
Step 1

Calculate your adjusted gross income. Income you received during the year includes wages, interest and dividend income, gains from the sale of stock (losses from the sale of stock are subtracted), business income reported on Schedule C, pensions, annuities, unemployment compensation and income from partnerships, S corporations and rental real estate. Depending on the sources and level of your income, a portion of your Social Security benefits may be taxed. From the total of this income, subtract certain adjustments including student loan interest, alimony payments, IRA contributions (Keogh or SEP retirement contributions if self-employed) and one-half self employment tax. This resulting amount is referred to as your adjusted gross income (AGI). From your adjusted gross income, you deduct your itemized or standard deduction and personal exemptions to arrive at your taxable income.

Step 2

Personal income tax rates vary from one individual to another. To use the 2010 IRS tax table, go to the IRS website and find your taxable income. Find the column for your filing status that corresponds to the same income line. Note that the IRS tax table cannot be used if your taxable income is $100,000 or greater. In this case, you will have to use a formula provided with the IRS tax tables. In this case, find your filing status first; then find your taxable income, and follow the formula given.

Step 3

The Social Security portion of FICA is calculated at the rate of 6.2 percent on employee wages up to $106,800. This wage limit is effective for both 2009 and 2010. Remember that pretax contributions to your retirement plan and employer paid adoption expenses are subject to Social Security rates. If you earn $106,800 or more, the Social Security tax withheld from your annual wages will be $6,621.60. If you earn less than $106,800, simply multiply your gross wages by 6.2 percent. If you are self-employed, you will also need to calculate and remit payment for the additional 6.2 percent imposed on employers.

Step 4

To calculate the Medicare portion of FICA, multiply your gross wages by 1.45 percent. Unlike the Social Security tax, all wages are subject to Medicare tax. Remember also that pretax contributions to your retirement plan and employer paid adoption expenses are subject to Medicare rates. For the self-employed, this is similar to Social Security taxes; you need to calculate and remit payment for the additional 1.45 percent imposed on employers.

Tips

  • In the event you have more than one W-2, your employers may withhold too much Social Security tax. You can receive a refund of the excess Social Security tax withheld when you file your 1040. The excess Social Security tax withheld will either reduce the income taxes you owe or add to your refund. For years later than 2009, visit the IRS website for current income tax tables and current year FICA wage limits, as these rates and limits often change from one calendar year to the next.

About the Author

Jessica Kent started writing professionally in 2002. Her articles have appeared in publications including the New York State Bar Association's "Family Law Review," "Valuation Strategies" and "Metropolitan Corporate Counsel." Through her writing, she strives to assist people in making informed financial decisions. She is a Certified Public Accountant in New York. Kent holds a Bachelor of Science in accounting from Binghamton University.

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