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I'm a consultant thinking of taking a full time salary job. I live in WA state and have a family. How can I calculate how much tax (federal, social security, medicare) I will pay?

I've used http://www.irs.gov/individuals/article/0,,id=96196,00.html, but I don't trust it because I did not see a place for mortgage interest deductions.

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Assuming the rules for 2011

You will pay 4.2% of your income up to $106,800 in Social Security taxes (one year reduction, this is normally 6.2%)

You will pay 1.45% of your income for medicare taxes on all earnings.

For federal and state income tax, that is a complicated calculation that involves a lot of variables. I suggest you get some tax software like TurboTax and run the actual numbers based on whatever estimates you have for other income, deductions, dependents,etc.

I suspect, from the phrasing of your question that you are actually interested in how much will be withheld from your paycheck. That, actually, is up to you. You can instruct the company's HR department to do whatever you want depending on how much you think you will owe at the end of the year. They estimate it using the W4 form you turn in that utilizes pretty much the same formula on the website you listed. The reason that mortgage interest deductions (or any others) aren't listed is that not everyone can take the deduction and many people won't itemize deductions (making it a moot point). The W4 isn't intended to be a 100% accurate picture of what you will owe, it is just a blunt estimating tool.

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What is your annual gross 2010 income, for example $80,000

(minus)

deductions like dependents, make sure to take the standardized for each, mortgage interest, any energy credits you may be entitled to, etc. say you have about $18,000 in deductions.

(equals)

$62,000

you then take that $62,000 and multiple it by your, federal tax rates, social security rate, medicare/medicade rates and you are all set.

(note you can use the income tax table on the IRS site to figure out the amount you will owe or you can calculate it.)

also when in doubt you can always use TroubleTax simple 1099-ez if you are a contractor or 1040 if you receive a W-2

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If you need an accurate answer, rather than simply how much will be withheld from your paycheck, then I would suggest getting some tax software and make up a return for yourself based on your income had you worked at this salaried position for the whole of the current tax year. Alternatively get a tax preparation expert to do it for you.

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There was recently a question about moving in the opposite direction (salary to contractor) that you may find helpful. Especially this answer that links to a calculator where you can find the contractor rate corresponding to a given salary plus some variables. I've done the calculation a couple of different ways, and the calculator was eerily close to the numbers I found in my spreadsheet even though it didn't account for some of the things I used in the spreadsheet.


As a second method, Turbotax has a calculator you can use to estimate your taxes.

What you want to do is enter your expected annual salary in the wages box, fill in the other boxes (mortgage interest, dependents, etc), leave withholding/payments at zero, and see how much tax you'd owe -- the total number. Write this down.

Then go back and zero out the wages box and enter your contractor income in the business income box. Leave the other figures the same. Look at the total number.

Then subtract the tax amounts from the respective earnings figures to get an after-tax earnings number for each.

The equation gets a bit more complex if you are currently paying for your own benefits, and these benefits will be paid by your prospective employer. Add/subtract these from the after-tax numbers you just calculated to get a better idea of your take-home comparison.

Another factor to consider is any 401k match you might get.

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