How We Calculate Take-Home Pay

Our calculators estimate take-home pay for an employee with a regular salary or hourly wage. This methodology page explains every step, the assumptions we make, the sources we use and the limits of our estimates.

Coverage and tax years

The general method

Whatever the country, a calculation follows the same logic as a payroll system:

1. Gross pay. The annual salary you enter, or the hourly wage multiplied by your weekly hours and 52 weeks.
2. Pre-tax deductions. Pension, 401(k), RRSP or salary sacrifice contributions you choose are subtracted where the law allows them to reduce taxable income.
3. Allowances and deductions. The standard deduction, personal allowance or basic personal amount is applied.
4. Income tax. Progressive brackets are applied slice by slice to taxable income, then credits and offsets are subtracted.
5. Payroll contributions. Social insurance contributions are calculated on gross pay with their thresholds and caps.
6. Take-home pay. Gross pay minus all of the above, divided into the pay periods used in each country.

United States

• Federal income tax: IRS brackets and the standard deduction for the selected filing status (single or married filing jointly).
• FICA: Social Security at 6.2% up to the annual wage base, Medicare at 1.45%, plus the 0.9% Additional Medicare Tax above $200,000 (single) or $250,000 (married filing jointly).
• State income tax: each state’s brackets, standard deduction, personal exemptions and phase-outs. Nine states do not tax wages.
• State payroll programs: employee contributions to disability and paid family leave insurance where they apply (for example California SDI, New York PFL, Washington PFML and WA Cares).
• Local taxes: Maryland county taxes use a statewide average. Other city and county income taxes (New York City, Philadelphia, Ohio municipalities, Indiana counties) are not included.
• 401(k): traditional contributions reduce federal and state income tax but not FICA, up to the annual limit.

United Kingdom

• Income Tax: Personal Allowance, tapered by £1 for every £2 above £100,000, then the bands for England, Wales and Northern Ireland, or the Scottish bands for Scottish taxpayers.
• National Insurance: employee Class 1 contributions, category A, calculated on an annual basis.
• Student loans: Plan 1, Plan 2, Plan 4, Plan 5 and Postgraduate repayments above each threshold.
• Pension: contributions are treated as a net pay arrangement (they reduce Income Tax, not National Insurance).
• Tax code 1257L is assumed. Benefits in kind, emergency tax codes and underpayments are not included.

Canada

• Federal tax: federal brackets, the basic personal amount (reduced for high incomes), the Canada employment amount and credits for CPP and EI contributions.
• Provincial and territorial tax: each jurisdiction’s brackets and basic personal amount, the Ontario surtax and Ontario Health Premium, and the Quebec abatement on federal tax.
• Contributions: CPP (QPP in Quebec) including the second contribution (CPP2), EI premiums (reduced rate in Quebec) and QPIP.
• RRSP: contributions reduce taxable income.
• Low-income provincial reductions and refundable benefits such as the Canada Workers Benefit are not included.

Australia

• Income tax: resident tax rates with the tax-free threshold, and the low income tax offset (LITO).
• Medicare levy: 2% of taxable income with the low-income phase-in for singles.
• HELP: compulsory repayments under the marginal repayment system, on repayment income.
• Super: the employer superannuation guarantee is shown separately, on top of salary. Salary sacrifice reduces taxable income.
• The Medicare levy surcharge, non-resident rates and working holiday maker rates are not included.

Assumptions and limits

Hours and pay periods

Official sources

Rates and thresholds come from the tax authorities and government agencies below. We link to them so you can check any figure.

Updates and corrections

We review our tax data before the start of each tax year and whenever a government announces a change. Every calculator and guide shows the tax year it applies to. If you believe a figure is wrong, please tell us with the page and the salary you used: we check every report and publish corrections as soon as they are confirmed.

Our methodology in a worked example

To see how the steps above fit together, follow one salary through the methodology. The order matters more than the exact rates, which you can find on each calculator page for the current tax year.

1. Start from gross pay. An hourly worker in the US on 40 hours a week is treated as working 2,080 hours a year, so the hourly wage is multiplied by 2,080.
2. Remove pre-tax contributions. If the worker puts part of their salary into a traditional 401(k), that amount is taken off before federal and state income tax, but not before FICA.
3. Apply the standard deduction for the chosen filing status to get taxable income.
4. Tax each slice of taxable income at its own bracket rate, federal first, then state.
5. Add payroll contributions: Social Security at 6.2% up to the wage base and Medicare at 1.45%, on gross pay.
6. Subtract everything from gross pay and divide by the pay periods: 12 for monthly, 26 for bi-weekly, 24 for semi-monthly, 52 for weekly.

The same methodology runs in the UK, Canada and Australia, with each country’s allowances, contributions and pay periods.

How we test the methodology

• Official worked examples. Where tax authorities publish examples or rate tables, we compare our results with them.
• Edge cases. We check the points where rules change: thresholds, caps, phase-outs and tapers, such as the UK Personal Allowance taper above £100,000 or the Additional Medicare Tax.
• Consistency. Guides and ready-made salary pages use the same engine and methodology as the calculators, so a figure is identical wherever it appears.
• Reader reports. When a reader reports a difference, we reproduce it and correct the rule if needed.

Average and marginal tax rates

Our methodology reports two rates. The average rate is total tax divided by gross pay: the share of your whole salary that goes to tax. The marginal rate is the tax on your next unit of income, which is what matters for a raise, a bonus or an extra pension contribution. Because brackets are progressive, the marginal rate is usually higher than the average rate.

Checking a figure against the official sources

You do not have to take our numbers on trust. Every rate and threshold in our methodology can be checked at the source, for example the IRS federal income tax rates and brackets, GOV.UK Income Tax rates and bands, the Canada Revenue Agency and the ATO tax rates for Australian residents. Our editorial guidelines explain how the same sources are used in our guides.

To test a result on your own payslip, compare one line at a time: gross pay first, then each tax and contribution. If one line differs, the assumptions and limits in this methodology usually explain why. If they do not, please send us the details.