Voiceover: Let’s say that
you’re a single person
who is making $50,000 a year.
Let’s figure out what
your actual take-home pay
would be after paying
federal income taxes,
and then in a future video,
we can also think about
what your state income taxes might be
if you’re in a state
that has income taxes.
So the first thing we need to think about
is what is our taxable income?
This $50,000, which is what you kind of
think your salary is,
this is your gross income,
and to get your taxable income,
we have to think about things
like exemptions and deductions.
I’m not going to go into a bunch of depth
right over here,
but if we just assume that you are a very
plain vanilla tax filer,
you’re just going to take
the standard deduction,
and you don’t have a bunch of, you know,
donations to charity or whatever else,
or a mortgage, interest,
or whatever else you might want to deduct.
You would take the standard deduction,
and then if you’re just an individual,
you’re only taking ownership for yourself,
only responsibility for yourself,
you get to have the personal exemption.
If you have a spouse, if you have kids,
you might have larger
exemption right over here.
The key about the
deduction and the exemption
is these aren’t deducted from your taxes.
These reduce your taxable income,
so you started at a
gross income of $50,000.
Let’s subtract out 6,100
for the standard deduction
and then 3,900 for the personal exemption,
and so your taxable income,
at the federal level,
is going to be 50,000 minus this stuff,
so this stuff adds up
to $10,000 of deductions
so your taxable income is $40,000.
Now, from this $40,000,
we can figure out how much you pay
in federal income taxes.
Right over here, I’ve done part of
the current federal tax brackets.
These change over time,
so the real basic idea for this video
is to get the idea of
how these brackets work.
These brackets might
change from year to year,
and many people say, “Okay, $40,000.
“It falls into this
bracket right over here,
“and this bracket’s at 25%,
“so the federal income tax must be 25%
“of the $40,000.”
That is not how a tax bracket works.
The way it works is you
pay 10% on the first 8,925,
then 15% on the increment up to 36,250,
and then 25% on the amount
that is above 36,250.
So let’s calculate what that is.
Get the calculator out.
We’re going to pay 10% of the first 8,925,
I have trouble pressing
buttons on this calculator.
And then to that, we’re going to pay 15%
on the next increment up to 36,250,
so that increment is 36,250 minus 8,925.
Once again, I have trouble
typing in a 5 there.
And then, I’m going to
pay 25% on the increment,
on the increment above 36,250,
so our taxable income is 40,000,
so it’s 40,000 minus 36,250.
And, let’s see.
Did I type that in right?
Yup, that looks pretty right,
and I get 5,92-,
I’ll just round, $5,929.
So this gets us to $5,929
of just straight up,
what I’ll just call straight up federal,
federal income tax.
Let me put that here. This
is federal income tax.
Now, we aren’t done at the federal level.
You also have what’s
often called the FICA tax,
or your share of the FICA tax.
This stands for the federal insurance,
Federal Insurance Contributions Act, FICA,
and this is essentially what you pay in
into social security and Medicare.
Right over here, although “emp” could be
an employer or employee,
so let me make this clear,
this is the employee’s share of FICA,
which you pay 6.2% for social security,
1.45%, and you don’t take
into account deductions
so you’re going to pay it
on the original $50,000,
so let’s calculate what
that’s going to be.
So it’s 50,000 times,
and you’re going to pay 0.062,
6.2% for social security,
and then you’re going
to pay another 1.45%,
1.45% for Medicare,
and then that gives you your FICA tax.
so $,3825 in your share of FICA taxes,
and I keep talking about
your share of FICA taxes.
Your employer will also separately,
this is the part that
gets taken out of your,
out of your salary.
Your employer will also pay another 3,825
that you will never see.
So this is essentially
half of the FICA taxes
that will go to the government
due to the fact that
you are working for your employer.
But now we have all of the taxes
that you are going to pay,
or all of the things
that are going to come out of your,
out of your payroll,
and so we can add those two things up.
We have the 3,825 plus the $5,929
gets us to 9,754.
9,754 in total federal things
that are taken out of your paycheck,
and so your take-home pay is going to be
$50,000 minus this right over here,
so that’s going to be 50,000 minus 9,754,
it gets us to 40,246,
so 40,246 is what you are left with
if we just take into
account the federal things,
the taxes and the FICA tax
that are taken out of your pay,
out of your paystub, essentially.
Now, if you are in a state
that does not have state income taxes,
and a city that does not
have local income taxes,
This would be your take-home pay.
In the next video,
we’ll think about how much more
will be taken out of your,
out of your pay if you are in a state
that has state income taxes.