How We Calculate

Editorial standards

Income Clarity is built and reviewed by a small editorial team focused on US personal finance. We follow four rules on every page:

1. Public data only. Every number traces back to a primary source — the IRS, the Social Security Administration, the Federal Reserve, the Bureau of Labor Statistics, or a federal agency. No paid data feeds. No private "studies."
2. Formulas in plain sight. The math behind every calculator is documented on this page. You can rebuild any result in a spreadsheet.
3. Defaults that match the median. Where a tool needs a default, we pick the US median or a widely-cited rule of thumb (28% rent rule, 50/30/20, etc.). We name the rule next to the number.
4. Review on a schedule. Tax tables, FICA caps, and mortgage rates change every year. We review and date-stamp every calculator at least once a year. Recently moved numbers are flagged on the relevant page.

Every page is educational. Income Clarity does not give legal, tax, or investment advice. If a number on our site disagrees with your CPA, your CPA wins.

How we calculate take-home pay

Our hourly-to-salary and salary calculators turn a wage into the dollar amount that actually hits your bank. The formula is:

Take-home = Gross − Federal income tax − FICA − State income tax − State disability (where it applies)

Federal income tax

• We use the IRS 2025 marginal tax brackets for the filing status the user picks. Single is the default.
• We apply the standard deduction for that filing status ($15,000 single, $30,000 married filing jointly for tax year 2025).
• We do not model itemized deductions, tax credits, or above-the-line adjustments. So our take-home is conservative for filers with mortgage interest, dependents, or HSA contributions.

FICA (Social Security + Medicare)

• Social Security: 6.2% of wages, capped at the 2025 wage base of $168,600.
• Medicare: 1.45% of all wages.
• Additional Medicare: 0.9% on wages above $200,000 (single) or $250,000 (MFJ).

State income tax

• We use each state's published brackets and rates for 2025 (or the most recent year published).
• Nine states have no wage income tax: AK, FL, NV, NH, SD, TN, TX, WA, WY. We model these as zero.
• California adds SDI at 1.1% of wages, no wage cap as of 2024. We include it.
• New York City adds local income tax on top of state. We note this in the New York state page rather than auto-applying it.
• We do not model county or city taxes outside of NYC, school district tax, or per-capita local levies.

What we leave out

Our take-home calculator does not subtract pretax 401(k) contributions, employer health insurance premiums, HSA contributions, or pretax transit benefits. These shift real take-home up (lower taxable income) or down (less of your check left after deductions). If you want a paycheck-exact number, run our result through your last pay stub for sanity.

How we calculate credit card payoff

The payoff calculator answers two questions: how many months until your balance hits zero, and how much total interest you'll pay along the way. The model is a standard amortizing loop:

For each month: interest = balance × (APR ÷ 12); principal = payment − interest; balance = balance − principal

• APR: we treat the user's APR as the nominal annual rate and divide by 12 for the monthly periodic rate. This matches how US card issuers compute interest charges.
• Minimum payment: when a tool offers a "minimum" simulation, we use max($25, 2% of balance), which is the formula most large US issuers publish. Real card minimums shrink as the balance drops — our default is a fixed minimum for illustration.
• Compounding: we treat compounding as monthly. Most US card issuers compound daily, but for a 12-month picture the difference is small (less than 0.5% on total interest).
• Fees: we do not add annual fees, balance transfer fees, or late fees. If those apply to you, add them as principal in our calculator.
• If the chosen payment is less than the first month's interest, we flag it. The balance would grow forever on those numbers.

How we calculate rent vs buy

Rent vs buy is a multi-year cash-flow comparison. We do not run a "net worth" model. We run a total cost model over a user-chosen time horizon.

Renting side

• Annual rent grows at the user's chosen rate (default 3.5% / year, which matches the long-run US national average tracked by the BLS rent index).
• We add renters insurance at a flat $15 / month US median.
• No tax effects on the renter side.

Buying side

• Principal + interest from a 30-year fixed mortgage. We use the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1].
• Property tax: state median effective rate × home value (e.g. CA 0.75%, TX 1.6%, NJ 2.2%). Source: Tax Foundation annual rankings.
• Homeowners insurance: 0.35% of home value per year US median; we let users override (FL is higher).
• Maintenance: 1% of home value per year, the long-used industry rule.
• Home appreciation: 3% / year default, near the US long-run average (Case-Shiller, 1987–2024).
• Closing costs: 3% of price on the buy side, 6% of future sale price on the sell side (national agent + transfer + title averages).
• Opportunity cost of the down payment: we compare to a 5% annual return if invested instead. Users can change this.

What we don't model

We don't model tax deductions for mortgage interest (most filers take the standard deduction since 2018). We don't model HOA fees, special assessments, PMI on low-down-payment loans, or rent control. These can push the break-even year up or down.

How we calculate 1099 vs W-2

The freelance calculator answers the most common contractor question: "my contract pays X — is it more than my W-2 offer at Y?"

• Self-employment tax: 15.3% on net earnings (12.4% Social Security up to the wage cap + 2.9% Medicare). We apply the 92.35% adjustment before calculating SE tax, per IRS Schedule SE.
• Deductible half of SE tax: 50% of SE tax is deducted before income tax, per the IRS.
• Health insurance: we add the user-entered premium. Default is $550 / month, the 2025 US median individual ACA marketplace premium before subsidies.
• Retirement comparison: when comparing to a W-2 with a 401(k) match, we add the match (often 3% to 6%) as compensation. Solo 401(k) headroom is mentioned but not auto-applied.
• Income tax: we use the same federal + state model as the take-home calculator, applied to net SE income (after the deductible half of SE tax).

How we calculate affordability

Our affordability tools (rent affordability, house affordability, "can I afford to live alone") use three widely-published rules of thumb. We name the rule next to the number every time.

• The 28% rule (rent or PITI ceiling): housing cost should stay at or below 28% of gross income. We use this for "max rent" and "house price you can afford."
• The 28/36 rule (front-end / back-end DTI): housing ≤ 28% of gross, total debt service ≤ 36% of gross. Mortgage underwriting follows a similar split.
• The 50/30/20 budget rule: needs 50%, wants 30%, savings + debt payoff 20% of take-home pay. Popularized by Elizabeth Warren in All Your Worth (2005).
• Down payment: home affordability defaults to 20% down (the threshold above which PMI is not required on a conforming loan). Users can change this.
• Mortgage rate: default 6.5% for 2025, close to the Freddie Mac PMMS weekly average. We round to a clean number to keep results stable across the year.

How we estimate cost of living

Our city comparison pages (Seattle vs Denver, NYC vs Austin, etc.) and metro tier estimators combine three public datasets:

• Rent by city: Zillow Observed Rent Index (ZORI) or the BLS metro CPI rent series, taking the most recent 12-month average.
• Groceries, transit, healthcare: BLS Consumer Expenditure Survey (CEX), the latest published year.
• Childcare: Child Care Aware annual "State Fact Sheets," with the figure for the state's largest metro when available.

We then group metros into four cost tiers — low / mid / high / very high — for quick estimators. The grouping is reviewed when ZORI or BLS publish their annual rebases.

Data sources

Every figure on Income Clarity should trace to one of these primary sources. If you find a number on our site that you can't reconcile with one of these, tell us — we'll fix it.

• IRS Publication 15-T — federal income tax withholding tables.
• IRS Tax Topic 751 — Social Security and Medicare withholding rates.
• Social Security Administration — annual wage base and benefit limits.
• Federal Reserve Board, Survey of Consumer Finances — household debt and asset statistics.
• Federal Reserve Bank of New York, Household Debt and Credit — quarterly aggregate balances and delinquency.
• Consumer Financial Protection Bureau — APR, credit card, and mortgage disclosure rules.
• Bureau of Labor Statistics, Consumer Price Index — rent, food, and transit inflation.
• BLS Consumer Expenditure Survey — household spending baselines by category.
• Freddie Mac Primary Mortgage Market Survey — weekly 30-year fixed mortgage rate.
• Tax Foundation property tax data — effective property tax rates by state.
• Zillow Research — Observed Rent Index and Home Value Index by metro.
• Child Care Aware of America — annual state-level childcare cost data.
• US Census Bureau, Historical Household Income Tables — median household income by state.

What this site is not

• Not tax filing software. Our take-home calculators do not file your return. Use TurboTax, H&R Block, or a CPA for that.
• Not investment advice. When we mention "what your money could grow to," we use a flat assumed return for illustration only. Past returns don't predict future results.
• Not mortgage pre-approval. Our house affordability shows what the 28/36 rule supports. A lender uses your full credit profile, reserves, and DTI on actual debts.
• Not legal advice. We don't model employment classification disputes, divorce settlements, or estate planning.
• US only. Every formula and rate assumes a US worker filing a US return. Numbers will not match Canadian, UK, or Australian tax systems.

Corrections policy

If a number is wrong, we want to know. We will:

1. Fix the page within 7 days of confirming the error.
2. Update the "Last reviewed" date on every page touched.
3. Add a short note at the bottom of the page describing what changed, for one quarter after the fix.

Reach us through the contact page with the URL and a quick description of what looks off. A screenshot or a primary source helps.