Income Details
Paycheck Breakdown
Understanding Your Net Income
Net income, commonly known as your take-home pay, is the amount of money you actually receive after all taxes and deductions have been subtracted from your gross income. For most individuals, calculating this manually can be tricky due to the complex nature of the US tax system.
Your gross income is reduced by several factors, including federal income tax, state income tax, and FICA taxes (Social Security and Medicare). If you have other deductions like health insurance premiums or retirement contributions (such as a 401(k)), those will further reduce your net income.
W-2 vs 1099 Taxes: What's the Difference?
Your employment status significantly impacts how much tax you owe. W-2 employees share the burden of FICA taxes with their employers. You pay 6.2% for Social Security and 1.45% for Medicare, while your employer pays a matching amount on your behalf.
If you're a 1099 independent contractor, freelancer, or self-employed, you are responsible for the entire FICA tax burden, known as the self-employment tax. This means you must pay both the employee and employer portions, totaling 12.4% for Social Security and 2.9% for Medicare. However, self-employed individuals can deduct half of this tax when calculating their adjusted gross income.
2024 Tax Limits to Keep in Mind
When calculating your take-home pay, there are a few important thresholds to remember for the 2024 tax year:
- Social Security Wage Base Limit: You only pay Social Security taxes on the first $168,600 of your income. Any earnings above this amount are not subject to the 6.2% (or 12.4% for 1099) tax.
- Additional Medicare Tax: While there is no cap on Medicare taxes, high earners must pay an additional 0.9% Medicare tax on income exceeding $200,000 for single filers or $250,000 for those married filing jointly.
- Standard Deductions: The 2024 standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly, which helps lower your taxable income before federal tax brackets are applied.