I want to save my overtime and bonuses in a savings account. I’m trying to figure out how to calculate the amount to deduct from my paycheck, but I don’t know how because of the taxes and withholdings. Is there a formula or trick to this? I don’t want to set aside the gross amount because that would be inaccurate since overtime and bonuses are taxed. I’m not sure how much to subtract to accurately account for the taxes and withholdings.
It is wonderful to hear that you are planning on saving the “extra” income. It is difficult to determine an exact amount to deduct from the overtime and bonuses without knowing your individual situation, such as whether you’re single or married, have dependents, etc. However, I can provide a formula to get you close.
Social Security, Medicare, and state and local taxes are specific percentages (see below), but federal withholding is a moving target. If you know your federal tax rate, I suggest using that. If not, you can calculate the rate by looking at your check stub and dividing the federal tax withheld by the gross federal taxable wages. For instance, if the tax withheld is $15 and your gross federal taxable wages is $100, then you would have a 15 percent federal tax rate ($15 / $100 = 15 percent). Your rate is most likely between 10 percent and 20 percent.
You must include all of the tax rates for the various withholdings in your formula. If you add up the percentages and apply that percentage to the gross overtime and bonuses amount, you would get the amount the that has been deducted from your paycheck for taxes and you can save the remainder.
For example, say your overall gross wages are $600; of that, $125 is for overtime. Now determine all your withholding percentages.
Social Security 6.20%
Pa. State 3.07%
Pa. Local (assuming 1%) 1.00%
Using the total percentage above and apply that to the $125:
$125 (amount of overtime) x .2672 (percentage from above) = $33.40 (tax withheld)
Then subtract the taxes withheld from your overtime to determine your post-tax savings amount: $125.00 - $33.40 = $91.60.
Answered by: Rosemary Lamaestra, CPA, CFE, is a manager with RLB Certified Public Accountants in Allentown, Pa.