According to the U.S. Department of Labor, a salary is a predetermined amount of pay the employee receives on a weekly or less common basis, such as monthly. Monthly salaried employees receive a guaranteed amount of pay each month that they can count on. To arrive at the gross monthly salary, the employer divides the annual salary by the number of annual pay periods. The net monthly salary is the employee's take-home pay for the month. You'll need the employee's gross monthly salary and deductions when calculating net monthly salary.
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Deduct pre-tax voluntary deductions from gross monthly pay. Voluntary deductions are those that the employer offers and the employee accepts (typically in writing). The employee can stop these deductions at some point. Pre-tax deductions lower taxable wages because they're deducted from gross wages before payroll taxes are withheld. Notably, pre-tax deductions, such as 401k plans, are deducted before federal income tax, Social Security tax, Medicare tax and state income tax are withheld. But pre-tax deductions, such as employer-sponsored term life insurance exceeding coverage of £32,500, are subject to only Medicare tax and Social Security tax. Check with your human resources department if you're unsure of what constitutes pre-tax deductions. Or, check section 125 of the Internal Revenue Service tax code.
Subtract involuntary deductions. Involuntary deductions are those that the federal and state government mandates. This includes applicable payroll taxes, such as federal income tax, Medicare tax, Social Security tax and state income tax and local income tax (if applicable). A wage garnishment or wage levy, which requires you to withhold a certain portion of the worker's pay to satisfy a debt, is also an involuntary deduction.
Deduct post-tax voluntary deductions. Post-tax deductions do not lower taxable income because the deduction is made after taxes are withheld. Post tax deductions include Roth 401k, charitable contributions and union dues. The remainder is the employee's net monthly salary.
Tips and warnings
- Use an online calculator, such as PaycheckCity, to calculate net monthly salary. The calculator gives you gross-to-net information.
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