Question

You have gross earnings of $2,370 per week and a Federal Income Tax rate of 24%. You have voluntary deductions.

What are your net earnings per week?

Answer 1

Gross earnings or gross pay is the amount an employe receives before adjusting tax and other other deductions.

To calculate net earnings the format is:

Gross earnings xxx

less : Voluntary deductions xxx

= Income before mandatory deductions  

less : Mandatory deductions xxx

= Net earnings

note - voluntary deductions may be pre-tax or post tax. If the deduction is pre-tax it reduces the taxable income.

Deductions includes both Voluntary and Mandatory ( involuntary) deductions. Voluntary deductions are those which can be opted by the employee. Life insurance,retirement plans,health insurance,flexible spending accounts etc comes under this category. Mandatory deductions are compulsory deductions which are required by the law. This include Federal income tax,social security tax,Garnishments etc.

Here gross earnings = $2,370 per week

Suppose you have voluntary deductions: life insurance - $210 per month and health insurance - $20 per week.

Federal income tax rate = 24%

Here life insurance is given per month, as we have to calculate net earnings per week calculate life insurance per week. So, 210/30 = 7 per day so it is 49 per week.

Calculation of Net earnings :

Gross earnings : 2370

less : voluntary deductions : 69 (49+20)

=   2301

less: federal income tax : 552

Net earnings per week = $1749