Federal Income Tax Calculation

The Federal Income tax is only the responsibility of the employee. The employer withholds the tax from the employees paycheck and remits it periodically to the Internal Revenue Service. The federal income tax withheld is subtracted from gross pay when calculating net pay.

Use the following template to determine your taxable income. The calculations assume that you will file single. Enter N/A for any cell that is not applicable to your project.

	Initial Amount	Amended Amount
Annual Salary from page 1
minus retirement plan contributions from page 2
minus interest paid on student loans*
equals Adjusted Gross Income (AGI)
minus standard deduction of $12,550 for 2021	(12,550)	(12,550)
Federal Taxable Income

*Interest paid on student loans during the year reduces your taxable income if your annual salary is below $85,000. If your salary is higher, you cannot deduct these interest payments. The maximum deductible available for student loan interest in 2021 is $2,500 per year. Since the amount paid is subject to the amount borrowed and the interest rate charged, you will need to look into your personal loan to get details. For purposes of the project, you are not required to provide details related to your loan. However, I encourage you to research how the pay back of your loan is structured, including when payments are due, how much is due, and how much of each payment is principal versus interest.

Find your taxable income in the tax chart below to calculate your annual federal income tax. For example, if your annual taxable income is $55,000, your federal income tax would be calculated as follows: $4,664 + ($55,000 - $40,525) x 22% = $7,849. (rounded up to nearest dollar). The marginal rate is the rate at which your next dollar of taxable income would be taxed. In this example, you would be in the 22% tax bracket, which is your marginal tax rate.

Federal Taxable Income	Marginal Tax Rate	Tax Owed
$0 to $9,950	10%	10% of taxable income
$9,951 to $40,525	12%	$995 plus 12% of the excess over $9,950
$40,526 to $86,375	22%	$4,664 plus 22% of the excess over $40,525
$86,376 to $164,925	24%	$14,751 plus 24% of the excess over $86,375
$164,926 to $209,425	32%	$33,603 plus 32% of the excess over $164,925
$209,426 to $523,600	35%	$47,843 plus 35% of the excess over $209,425
$523,601 and above	37%	$157,804 plus 37% of the excess over $523,600

source: 2021 tax brackets

Complete the following chart. You will need to amend your federal income tax calculation if you change your gross salary or retirement contributions for your amended budget. Enter N/A for any cell that is not applicable to your project. Enter the monthly amounts where appropriate on your budget.

	Tax Calculation (in the same format as shown in the example above)	Initial Amount	Amended Amount
Annual Federal Income Tax
Monthly Federal Income Tax

State Income Tax Calculation

The State Income tax is only the responsibility of the employee. The employer withholds the tax from the employees paycheck and remits it periodically to the state. The state income tax withheld is subtracted from gross pay when calculating net pay.

In which state do you plan to live and work?

To calculate your state income tax, locate the state in which you plan to live and work in the Excel file found under Download Data on this link and complete the following chart using the information from the single column on the file. You will need to amend your state income tax calculation if you change your gross salary or retirement contributions for your amended budget. Enter N/A for any cell that is not applicable to your project. Enter the monthly amounts where appropriate on your budget. Note that not all states have a state income tax. If your chosen state does not have a state income tax, enter N/A in all of the cells.

	Initial Amount	Amended Amount
Adjusted Gross Income (AGI) from page 4
minus state standard deduction
minus state personal exemption
State Taxable Income

Using the brackets provided on the Excel file, calculate your state income tax. Be sure to show your detailed calculations since every state is different. If your chosen state does not have a state income tax, enter N/A in all of the cells. Enter the monthly amounts where appropriate on your budget.

	Tax Calculation	Initial Amount	Amended Amount
Annual State Income Tax
Monthly State Income Tax

Local Income Tax Calculation

In addition to a state income tax, some cities and counties also have a local income tax. However, for purposes of this project, you are not required to research and calculate local income taxes.

HEALTH INSURANCE

Under employer-sponsored health insurance plans the cost of health insurance premiums is shared between employer and employee. Refer to this link for health insurance costs: health insurance. Figure B shows the average yearly insurance premium for different types of plans. For your budget, use the worker contribution for single coverage for all plans, which is just an average of the worker contribution for all of the plans listed. Complete the following chart and use the information for your initial and amended budgets even if you plan to stay on your current policy until age 26 or plan to self-insure. Enter the monthly amounts where appropriate on your budget.

	Amount
Annual Premium
Monthly Premium

Dental and vision insurance policies are separate from health insurance policies. However, for purposes of this project, you are not required to research and calculate dental and vision insurance premiums

MONTHLY FIXED COSTS AND MONTHLY VARIABLE COSTS

Monthly fixed costs are costs that you must pay regardless of your situation because you are locked into a monthly payment. Monthly variable costs are costs that you do have some control over in the short run and that are more easily adjusted each month to fit your situation. You are not required to provide any details related to the amounts used for your monthly fixed and variable costs on your budget. However, I want to encourage you to make your budget as realistic as possible. Research the cost of living in the city where you will live and work. Take time to determine how much your cell phone bill will be once youre on your own. If you plan to get a new car, calculate what you expect the payment to be. Think about your grocery bill and how much you expect to spend on eating out. If you want a pet, consider the costs of caring for it. I dont expect you to go overboard and do hours of research but spend more time on some of the bigger categories to truly make your budget a useful tool for determining your financial position after college. I want this to be a project you take with you long after your grade is posted to Athena.

I have included a couple of lines under both the fixed and variable sections labeled OPEN. This is just space for you to add any other costs for your budget that I did not capture in my list. Make it your own! Budgets are personal and should be a reflection of your life.

PLANNED EXPENSES

There are some expenses that you do not pay for on a monthly basis. However, it is a good idea to save for these planned expenses each month to avoid running into a situation where you do not have enough money to cover the expense when it occurs and end up either using your savings or a credit card. For example, lets say you want to take a summer vacation and expect it to cost $1,200. You would need to budget to save $100 a month for the 12 months leading up to the vacation. In the chart below I have included some items that I consider planned expenses but feel free to modify the list. The first line is just an example to show you what Im looking for in the chart. Complete the chart and enter N/A for any cell that is not applicable to your project. Enter the total monthly amounts where appropriate on your budget.

		Amount Expected in Total each time		Conversion of the Total to a Monthly Amount
Description	Frequency	Initial	Amended	Initial	Amended
example	quarterly (every 3 months)	$300 in total each quarter	$150 in total each quarter	$3003 months=$100 per month	$1503 months=$50 per month
vehicle licensing and tag fees
life insurance premiums
pest control
pet medicine
trash collection
trips
MONTHLY SAVINGS FOR PLANNED EXPENSES				enter total here	enter total here

EMERGENCY SAVINGS

	example	Initial	Amended
desired balance (show calculations)	$6,000 per month in expenses x 6 months = $36,000
time period to fund	36 months
monthly amount to save	$1,000

Emergency savings is money set aside to help with an unforeseen situation. It is separate from retirement and savings for planned expenses and serves as a financial safety net, only to be used when an emergency occurs. The size of your emergency savings will vary depending on your income and monthly expenses. The rule of thumb is to put away at least three to six months worth of expenses. This amount can seem daunting at first, but the idea is to put a small amount away each month to build up to that goal. The first column is just an example to show you what Im looking for in the chart. Complete the chart and enter N/A for any cell that is not applicable to your project. Enter the monthly amounts where appropriate on your budget.