How We Calculate Your Paycheck

1. The Four-Stage Calculation Sequence

A take-home-pay estimate begins with your gross earnings and pay frequency. Our engine executes calculations in four sequential stages:

1. Annualization & Pre-Tax Base Adjustment: Convert periodic earnings to an annualized gross baseline and determine taxable wages after subtracting eligible statutory pre-tax deductions (Section 125 health plans and traditional 401k).
2. Federal Income Tax Withholding (IRS Pub 15-T): Apply modern Form W-4 adjustments (Steps 2, 3, 4a, 4b, 4c) and IRS percentage method bracket tables to compute federal withholding.
3. FICA Payroll Taxes (SSA & IRS): Calculate Social Security (6.2% up to $181,800 cap), Medicare (1.45% uncapped), and Additional Medicare (0.9% on wages over $200k).
4. State & Local Deductions: Calculate state-specific income tax withholding according to verified state formulas (e.g., California Method B), plus mandatory state insurance programs (CA SDI, WA PFML, PA UC).

2. Federal Income Tax Withholding Algorithm

We implement the Percentage Method Tables for Automated/Manual Payroll Systems from official **IRS Publication 15-T (Tax Year 2026)**:

```text [Taxable Wages per Paycheck] = Gross Pay − Section 125 Benefits − Traditional 401(k) [Annualized Taxable Wages] = Taxable Wages per Paycheck × Pay Periods (52, 26, 24, 12) [Adjusted Wage] = Max(0, Annualized Wages + W-4 Step 4a − W-4 Step 4b) If Step 2 (Multiple Jobs) is checked: Use Table Set B (Step 2 Checked) Else: Use Table Set A (Standard Brackets) [Tentative Tax] = Bracket Base Amount + ((Adjusted Wage − Bracket Minimum) × Marginal Rate) [Annual Tax After Credits] = Max(0, Tentative Tax − W-4 Step 3 Dependent Credits) [Period Federal Withholding] = RoundCents((Annual Tax ÷ Pay Periods) + W-4 Step 4c Extra) ```

3. FICA Payroll Tax Mechanics & Deduction Hierarchy

Under federal law (IRC § 3121(a)(5)), deductions have differing legal effects on FICA wages:

• Traditional 401(k) / 403(b): Subject to FICA. Retirement deductions reduce federal and state income tax taxable wages, but do not reduce Social Security and Medicare wages.
• Section 125 Cafeteria Plans: Exempt from FICA. Health insurance, dental/vision premiums, HSA, and FSA contributions bypass federal income tax, state income tax, AND FICA taxes.

Social Security & Medicare Thresholds (2026):

• Social Security (OASDI): 6.20% on wages up to $181,800.
• Medicare (HI): 1.45% on all earnings with no wage cap.
• Additional Medicare Withholding: 0.90% withheld on wages paid in excess of $200,000 in a calendar year by an employer, regardless of marital status, per IRS employer withholding rules in Publication 15.

4. State Withholding Methodologies

We do not apply simplified flat rates to progressive states. Each state is modeled according to official agency instructions:

• California: Implements EDD Method B (Exact Calculation Method) with standard deduction allowances ($5,540 Single / $11,080 Joint), personal allowance credits ($158.40), and 1.2% State Disability Insurance (SDI) with no wage limit under California SB 951.
• Texas & Florida: 0.00% state individual wage income tax and 0.00% state disability deductions under state constitutional prohibitions.
• Washington: 0.00% state income tax; models mandatory state programs: WA PFML (0.284% up to $181,800) and WA Cares Fund (0.58% uncapped).
• New York: NYS Department of Taxation and Finance progressive tables (NYS-50-T-NYS), with optional New York City resident withholding (NYS-50-T-NYC) and Yonkers surcharge.
• Illinois: Flat 4.95% rate minus $2,775 personal exemption allowances.
• Pennsylvania: Flat 3.07% rate (with 401k not exempt per PA law), plus 0.07% PA UC employee tax and local Earned Income Tax (EIT).
• Ohio: Consolidated brackets (0%, 2.75%, 3.50%) with exemption allowance credits.
• Georgia: Flat 5.39% rate with $12,000 / $24,000 standard deduction and dependent credits.
• Arizona: Flat 2.5% default or employee Form A-4 percentage elections.

5. Currency Precision and Rounding Rules

To prevent floating-point accumulation errors, our calculation engine enforces strict rounding:

• Rounding is performed to integer cents using Math.round((cents + Number.EPSILON) * 100) / 100.
• All line items are floored at positive zero to eliminate negative zero (`-0.00`) display artifacts.
• Rounding is executed at intermediate payroll boundaries matching commercial payroll software.

6. Known Limitations

While our engine delivers high-precision estimates for standard W-2 employees, certain non-standard scenarios fall outside our current scope:

• Complex multi-state wage allocations or reciprocal tax agreements across multiple employers.
• Equity compensation, stock options (ISOs/NSOs), and Restricted Stock Units (RSUs).
• Tipped employees subject to restaurant tip credits and allocated tip rules.
• Independent contractors (1099-NEC) subject to Schedule SE self-employment taxes.

To review the primary agency source documents used for each calculation, explore our Source Registry.