How We Calculate Salaries: Methodology & Formulas
Understanding exactly how your salary converts to take-home pay requires navigating a complex web of federal tax brackets, state income taxes, Social Security contributions, and Medicare withholdings. Our <a href="/finance/salary-calculator" class="text-blue-600 hover:underline">salary calculator</a> automates this entire process, but transparency matters. This methodology page explains every formula, assumption, and data source we use so you can verify our calculations independently.
The United States employs a progressive federal income tax system with seven brackets ranging from 10% to 37% for the 2026 tax year. On top of federal taxes, 43 states and the District of Columbia levy their own income taxes, each with unique bracket structures. Our calculator handles all of these layers simultaneously, applying standard deductions, FICA contributions, and state-specific rules to produce an accurate net pay estimate.
Below, we walk through each formula in plain language, show concrete numerical examples, and document the authoritative sources behind our tax data. Whether you are negotiating a job offer, comparing positions across states, or simply trying to understand your paycheck, this guide gives you full visibility into the math.
Formulas & Equations
Gross-to-Net Pay Conversion
This master formula is the backbone of every salary calculation. It starts with your total gross compensation and subtracts each mandatory deduction in sequence. The order of subtraction does not affect the final result because each deduction is computed independently against the gross amount (or a portion of it, in the case of FICA wage bases).
Variables:
- Gross Pay = Total annual compensation before any deductions, including base salary, bonuses, and taxable benefits
- Federal Tax = Income tax owed to the IRS, calculated using progressive marginal brackets applied to taxable income (gross minus standard or itemized deductions)
- State Tax = Income tax owed to your state of residence, varying from 0% in states like Texas and Florida to over 13% in California
- FICA = Combined Social Security (6.2%) and Medicare (1.45%) contributions, totaling 7.65% of applicable wages
Federal Tax Bracket Calculation
The U.S. federal income tax uses a marginal rate system. Income is not taxed at a single flat rate; instead, each dollar is taxed at the rate of the bracket it falls into. For example, a single filer earning $100,000 in taxable income does not pay 24% on all $100,000. The first $11,600 is taxed at 10%, the next $35,550 at 12%, and so on. Our calculator iterates through each bracket, computing the tax owed in that range, and sums the results.
Variables:
- Bracket_Amount = The portion of taxable income that falls within a specific bracket range, e.g. the amount between $11,600 and $47,150 for the 12% bracket (single filer, 2026)
- Rate = The marginal tax rate for that bracket: 10%, 12%, 22%, 24%, 32%, 35%, or 37%
- Taxable Income = Gross income minus the standard deduction ($15,000 for single filers in 2026) or itemized deductions
Hourly-to-Annual Salary Conversion
Converting an hourly wage to an annual salary requires assumptions about working hours and weeks. The standard assumption is 40 hours per week and 52 weeks per year, yielding 2,080 working hours annually. However, this does not account for unpaid time off. If a worker takes two weeks of unpaid vacation, the effective multiplier becomes 40 x 50 = 2,000 hours. Our calculator defaults to 2,080 hours but lets users adjust both inputs.
Variables:
- Hourly Rate = The wage earned per hour of work, before any deductions or overtime considerations
- Hours Per Week = Standard weekly working hours, typically 40 for full-time employment in the U.S.
- Weeks Per Year = Number of working weeks in a year, typically 52; reduce for unpaid leave
Monthly-to-Annual Conversion
This straightforward conversion multiplies a monthly salary by 12 to obtain the annual figure. It applies to salaried employees who receive a fixed monthly payment. For biweekly pay schedules (26 pay periods per year), the formula is Annual = Biweekly Pay x 26. For semi-monthly (24 pay periods), it is Annual = Semi-Monthly Pay x 24. These distinctions matter because biweekly employees receive two extra paychecks compared to semi-monthly employees.
Variables:
- Monthly Salary = Gross pay received each calendar month before deductions
- 12 = The number of calendar months in a year; use 26 for biweekly or 24 for semi-monthly pay periods
State Income Tax Formula
State income tax calculations follow a similar marginal bracket approach as federal taxes, but each state defines its own brackets, rates, and deductions. Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) impose no state income tax at all. Thirteen states use a flat rate, while the remaining states use progressive brackets. Our calculator stores the full bracket table for every state and applies the appropriate one based on your filing state.
Variables:
- State_Bracket_Amount = Portion of state taxable income falling within a particular state bracket
- State_Rate = The marginal state tax rate for that bracket, ranging from 0% to 13.3% depending on the state
- State Deduction = State-specific standard deduction, which may differ from the federal standard deduction
FICA (Social Security + Medicare) Calculation
The Federal Insurance Contributions Act requires employees and employers to each pay 6.2% for Social Security and 1.45% for Medicare. Social Security tax applies only up to the wage base limit ($168,600 for 2026). Once earnings exceed this cap, no additional Social Security tax is collected. Medicare has no wage cap, but an Additional Medicare Tax of 0.9% applies to wages exceeding $200,000 for single filers ($250,000 for married filing jointly). Our calculator accounts for all three components.
Variables:
- SS Wage Base = The Social Security wage base limit set annually by the SSA; $168,600 for 2026
- 6.2% = Employee share of the Social Security tax rate
- 1.45% = Employee share of the Medicare tax rate, applied to all wages with no cap
- 0.9% = Additional Medicare Tax on wages above $200,000 (single) or $250,000 (married filing jointly)
Step-by-Step Process
Step 1: Determine Gross Annual Income
The calculator first normalizes all input into an annual gross figure. If you enter an hourly rate, it multiplies by hours per week and weeks per year. If you enter a monthly salary, it multiplies by 12. Biweekly inputs are multiplied by 26, and semi-monthly inputs by 24.
This standardization ensures that every subsequent calculation operates on a consistent annual basis, regardless of how the user originally expressed their compensation.
Example:
For a $36/hour wage at 40 hours/week and 52 weeks/year: Annual Gross = $36 x 40 x 52 = $74,880.
Step 2: Calculate Taxable Income
From the gross annual income, we subtract the applicable standard deduction based on filing status. For 2026, the standard deduction is $15,000 for single filers, $30,000 for married filing jointly, and $22,500 for head of household. Users who itemize deductions can enter a custom amount instead.
Pre-tax contributions such as 401(k) deferrals and health insurance premiums paid through cafeteria plans further reduce taxable income. Our calculator includes optional fields for these adjustments.
Example:
For a $75,000 salary (single filer): Taxable Income = $75,000 - $15,000 standard deduction = $60,000.
Step 3: Apply Federal Tax Brackets
The calculator iterates through the 2026 federal tax brackets, applying each marginal rate to the portion of taxable income that falls within that bracket. The result is the total federal income tax liability for the year.
We store the full bracket tables for all five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Surviving Spouse. The calculator selects the correct table based on user input.
Example:
For $60,000 taxable income (single): 10% on first $11,600 = $1,160; 12% on next $35,550 = $4,266; 22% on remaining $12,850 = $2,827. Total federal tax = $8,253.
Step 4: Apply State Income Tax
If the user selects a state with income tax, the calculator applies that state's bracket structure to state taxable income. State taxable income may differ from federal taxable income because many states have their own deduction amounts and rules about what income is taxable.
For states with a flat income tax (such as Illinois at 4.95% or Colorado at 4.4%), the calculation is simpler: State Tax = State Taxable Income x Flat Rate. The calculator automatically detects whether the selected state uses flat or progressive rates.
Example:
For $75,000 in California (single): After California's standard deduction of $5,540, the state taxable income is $69,460. Applying California's progressive brackets yields approximately $3,280 in state tax.
Step 5: Calculate FICA Contributions
Social Security tax is calculated at 6.2% of gross wages up to the Social Security wage base ($168,600 for 2026). Medicare is 1.45% on all gross wages with no cap. If gross wages exceed $200,000 (single filer), an additional 0.9% Medicare tax applies to the excess.
FICA is calculated on gross wages, not taxable income. This means pre-tax deductions like 401(k) contributions do not reduce FICA liability. Health insurance premiums paid through Section 125 cafeteria plans, however, are exempt from FICA.
Example:
For $75,000 gross salary: Social Security = $75,000 x 6.2% = $4,650; Medicare = $75,000 x 1.45% = $1,087.50. Total FICA = $5,737.50.
Step 6: Compute Net Pay and Pay Period Breakdown
The final step subtracts all calculated taxes and deductions from gross pay to arrive at annual net pay. The calculator then divides this annual net figure by the number of pay periods to show per-paycheck take-home amounts: monthly (divide by 12), biweekly (divide by 26), weekly (divide by 52), and daily (divide by 260 working days).
The summary output includes a visual breakdown showing the percentage of gross pay consumed by each deduction category, making it easy to see where your money goes.
Example:
For a $75,000 salary in California: Net Pay = $75,000 - $8,253 (federal) - $3,280 (state) - $5,737.50 (FICA) = $57,729.50 annually, or approximately $4,810.79 per month.
Accuracy Considerations
Our salary calculator uses tax brackets and deduction amounts published by the IRS and individual state revenue departments for the 2026 tax year. We update these figures annually when new tables are released, typically in late October or November for the following year. Between updates, the calculator reflects the most current available data.
It is important to note that our calculator provides estimates, not exact payroll figures. Actual paychecks may differ due to factors such as employer-specific benefit deductions, local income taxes (city or county level), garnishments, union dues, and variations in how employers handle rounding across pay periods. Additionally, workers who receive irregular income (commissions, bonuses, overtime) may see different withholding rates because employers often use the supplemental wage flat rate of 22% for federal tax on bonuses.
For the most precise results, we recommend comparing our estimates with your most recent pay stub. If discrepancies exist, check whether your employer is withholding at a different rate due to a W-4 adjustment or additional local taxes that our calculator may not cover.
Data Sources
All federal tax data is sourced directly from the Internal Revenue Service's annual Revenue Procedures, which define bracket thresholds, standard deduction amounts, and personal exemption phase-outs. Social Security wage base limits come from the Social Security Administration's annual announcements, typically released each October.
State tax data is compiled from each state's Department of Revenue or Franchise Tax Board publications. We cross-reference these figures with data from the Tax Foundation, a nonpartisan research organization that publishes comprehensive state tax comparisons. For states that index brackets to inflation, we use the most recently published indexed amounts.
Cost-of-living adjustment factors, when displayed alongside salary comparisons, are derived from the Bureau of Labor Statistics' Consumer Price Index (CPI) data and supplemented by the Council for Community and Economic Research's (C2ER) Cost of Living Index for metro-area comparisons.
Known Limitations
Our calculator does not currently account for all local income taxes. While we include state-level taxes for all 50 states and D.C., only a subset of city and county taxes are modeled (notably New York City, Yonkers, and select Ohio municipalities). If you live in a jurisdiction with a local income tax not covered by our tool, your actual take-home pay will be lower than displayed.
The calculator assumes a single job with consistent income throughout the year. Workers with multiple jobs, self-employment income, or significant investment income may face different effective tax rates. Self-employment tax (the employer + employee share of FICA, totaling 15.3%) is not included in our standard salary calculator but is handled by our dedicated tax calculator.
Finally, the calculator does not simulate tax credits such as the Earned Income Tax Credit (EITC), Child Tax Credit, or education credits. These credits can significantly reduce total tax liability for qualifying taxpayers but require detailed household information beyond the scope of a salary conversion tool.