How to calculate payroll tax, step by step
To calculate payroll tax, take the annual pay, subtract the standard deduction, and run the federal tax brackets on what is left. The formula is federal tax = brackets on (annual pay − $16,100), and the payroll tax is the federal tax plus 6.2% Social Security, 1.45% Medicare and the state rate. The take-home pay is the gross pay minus all of it. On the worked example below, $5,000 a month of gross pay ($60,000 a year) gives $3,949.17 of take-home pay a month — $1,050.83 is withheld, and the employer pays another $386.00 a month on top.
The worked example: $5,000 a month, single filer, 5% state tax
The worked example, step by step. Step 1 — write down the pay: $5,000 a month is $60,000 a year. Step 2 — subtract the standard deduction: $60,000 − $16,100 is $43,900 of taxable income. Step 3 — work out the federal tax: 10% of the first $12,400 is $1,240.00, and 12% of the remaining $31,500 is $3,780.00, so the federal tax is $5,020.00 a year, or $418.33 a month. Step 4 — Social Security: 6.2% of $5,000 is $310.00 a month. Step 5 — Medicare: 1.45% of $5,000 is $72.50 a month. Step 6 — state tax: 5% of $5,000 is $250.00 a month. Step 7 — add the withholding: $418.33 + $310.00 + $72.50 + $250.00 is $1,050.83 a month. Step 8 — subtract it from the pay: $5,000 − $1,050.83 is $3,949.17 of take-home pay a month, $47,390.00 a year.
What payroll tax is
Payroll tax is the tax taken out of a paycheck before the money reaches the worker. It has four pieces: federal income tax, which is progressive; Social Security, which is 6.2% of pay up to the $184,500 wage base for 2026; Medicare, which is 1.45% of every dollar plus another 0.9% on annual wages over $200,000; and state income tax, which every state sets differently. The employer pays a matching share of Social Security and Medicare, plus FUTA unemployment tax — $386.00 a month on a $5,000-a-month salary — so a worker costs $5,386.00 a month in all. Payroll tax is not the whole tax bill: it leaves out credits, local taxes and anything deducted before tax, like a 401(k).
The federal brackets, in plain words
The federal tax is progressive, which means only the dollars above each line are taxed at the higher rate. For a single filer in 2026 the lines are 10% to $12,400 of taxable income, 12% to $50,400, 22% to $107,475, 24% to $205,250, 32% to $260,600, 35% to $651,350, and 37% above that. On $43,900 of taxable income only the first $12,400 is taxed at 10% and the rest at 12% — no dollar is taxed at 22%, because the taxable income never reaches the 22% line. That is why the federal tax is $5,020.00 a year and not 22% of $60,000: the bracket is the rate on the last dollar, not on the whole salary. A pay rise that crosses a bracket line only taxes the dollars above the line at the new rate.
The Social Security cap and the Medicare add-on
Social Security stops at the wage base: 6.2% of pay up to $184,500 a year for 2026, which is $15,375 a month. Earn $15,375 a month and the Social Security is $953.25 a month; earn $20,000 a month and it is still $953.25, because the pay above the base is Social Security-free. Medicare has no cap: it is 1.45% of every dollar, and on top of that there is another 0.9% on annual wages over $200,000 for a single filer — at $20,000 a month the Medicare is $437.50 a month, and the extra 0.9% is in there. At $1,000 a month the federal tax is $0, because $12,000 a year is below the $16,100 standard deduction — but Social Security and Medicare still come out, $62.00 and $14.50, because they have no deduction at all.
How to work backwards from a take-home target
To find the gross pay for a take-home target, work the formula backwards — or use the reverses in the payroll-tax-calculator. To take home $4,000 a month at a 5% state tax rate, a single filer needs $5,067.46 a month of gross pay. To take home $60,000 a year, the gross pay has to be $6,525.12 a month. The gap between gross and net grows as the pay rises, because more of the pay falls in the higher brackets — at $8,000 a month the take-home is $5,963.83, and at $12,500 a month it is $8,860.54. A $1,000-a-month pay rise is never $1,000 of take-home: at the 22% bracket with 6.2% Social Security, 1.45% Medicare and 5% state tax, about $655 of it reaches the bank account.
Common mistakes
The first mistake is taxing the whole salary at the top bracket: the federal tax is $5,020.00 a year on $60,000 of pay, not 22% of $60,000, because the brackets are marginal and the standard deduction comes first. The second is forgetting the Social Security cap: above $15,375 a month the Social Security stops growing, so a high salary keeps more of each extra dollar than the flat 6.2% suggests. The third is leaving out the employer share: a $5,000-a-month salary costs the employer $5,386.00 a month, and a freelancer who charges the salary rate is undercharging by the employer share. The fourth is treating the state rate as flat: real state taxes have brackets, deductions and local add-ons, and several states have no income tax at all. And the fifth is ignoring pre-tax deductions: a 401(k) contribution lowers the taxable income and the federal tax, so the take-home falls by less than the contribution.
A quick check you can do in your head
You can sanity-check any payroll tax without a calculator. First, the withholding must add up: $418.33 + $310.00 + $72.50 + $250.00 is $1,050.83, and $5,000 − $1,050.83 is $3,949.17 — if the pieces do not add to the total, one of them is wrong. Second, the federal tax must sit below the top bracket times the pay: $5,020.00 a year is well below 22% of $60,000, because the lower brackets and the standard deduction come first. Third, the Social Security must be 6.2% of the pay while the pay is below the cap: 6.2% of $5,000 is $310.00. Fourth, the take-home must rise with the pay but never by the full rise: $4,000 a month of pay takes home $3,195.67, and $8,000 takes home $5,963.83. If a calculator breaks any of these checks, the number is wrong — run your numbers through the payroll-tax-calculator and compare them with the worked example above.