SOUTH DAKOTA

REAL WAGE

CALCULATOR
FREQUENTLY ASKED QUESTIONS

WHAT IS THE REAL WAGE CALCULATOR DESIGNED TO DO?

The Real Wage Calculator is designed to calculate the purchasing power of wages, after federal income tax, state income tax, and social security taxes are withheld. Your after-tax wages are then adjusted by a specific city/region’s cost of living to determine your purchasing power. The calculator allows you to compare job offers to see which job really pays the best.

WHY IS PURCHASING POWER IMPORTANT?

Most all of us work out of necessity; so that we can live and buy things for our family. The true measure of how well you’re paid is not your gross pay; rather it is how much you can buy with your wages after the government takes its share.

HOW CAN PURCHASING POWER BE DETERMINED?

The US Bureau of Economic Analysis produces comprehensive regional price parities (RPP) for every metropolitan statistical area (MSA) in the United States. The RPP is a cost of living index computed by comparing millions of price points on goods and services. Purchasing Power is computed by dividing after tax wages by the RPP for a city/region.

HOW IS THE REAL WAGE CALCULATOR DIFFERENT THAN OTHER EXISTING CALCULATORS?

The Real Wage Calculator is the only calculator that takes taxes into account when trying to compare real wages in different cities/states. Taxes can range from 7.65% to over 40% of your paycheck. Using a wage calculator that does not consider taxes will drastically overstate your purchasing power.

DOES THE REAL WAGE CALCULATOR INCLUDE THE LATEST CHANGES IN THE FEDERAL INCOME TAX LAW?

Yes. In December of 2017, The Tax Cuts and Jobs Act of 2017 became law, which generally reduced federal income tax rates for 2018 and beyond. The Real Wage Calculator has been updated to reflect these changes. Both Federal Income Tax and FICA (Social Security and Medicare taxes) are calculated using 2018 federal tax laws.

HOW UP-TO-DATE ARE STATE INCOME TAX CALCULATIONS?

The Real Wage Calculator uses 2017 state income tax laws and rates. This is because, as of mid-year 2018, many states are still in the process of changing/updating their 2018 income tax laws. The Real Wage Calculator will be updated to 2018 state income tax laws and rates in early 2019, once all state income tax law changes have been made.

FEDERAL AND STATE INCOME TAX IS COMPLEX, WITH MANY FILING OPTIONS. HOW DOES THE REAL WAGE CALCULATOR COMPUTE TAXES?

Taxes are computed for a single filer, standard deduction, who claims no additional dependents. This is the most common filing method.

BUT THERE ARE MANY OTHER CREDITS AND DEDUCTIONS AVAILABLE DEPENDING UPON ONE’S CIRCUMSTANCES. HOW DOES ONE ACCOUNT FOR THIS?

There are hundreds of filing permutations that are possible. By using the base assumptions, we calculate a given wage’s maximum purchasing power. Any credit or deduction (child care credit, itemized deductions, etc.) requires you to pay more out of pocket than the tax benefit you receive.

HOW DO I ACCOUNT FOR PRETAX HEALTH INSURANCE, MEDICAL FLEX, OR CHILD CARE FLEX?

To get an even more accurate number you can reduce the gross annual wage you input into the calculator by the amount withheld for medical insurance (pretax), medical flex accounts, and child care flex accounts. The amount deducted from your paycheck for these reasons is not subject to income tax or social security.

WHAT ABOUT OTHER TAXES LIKE PROPERTY TAXES AND SALES TAX?

All other taxes, except income and social security, are included in the regional price parities. Every state has an average regional price parity.

I DO NOT WORK IN A CITY (MSA) LISTED ON THE REAL WAGE CALCULATOR; WHAT SHOULD I USE TO CALCULATE PURCHASING POWER?

If you do not reside in or close to a listed MSA, then use the state average regional price parity.

I WORK IN AN MSA LISTED BUT LIVE OUTSIDE THE MSA; WHICH LOCATION/RPP SHOULD I USE?

We recommend using the MSA you work in. Even though you live outside the borders of the MSA it is likely that your cost of living is closer to the MSA you work in than the state average cost of living.

I’M COMPARING THE EXACT SAME GROSS WAGE IN A STATE WITH AN INCOME TAX AND A STATE WITHOUT AN INCOME TAX; IS THE DIFFERENCE IN AFTER TAX WAGES SOLELY THE RESULT OF STATE INCOME TAXES?

Yes, the difference is the state income tax. If you want to determine how much state income tax you will owe, enter the same gross wage in South Dakota (we have no income tax) and then compare the after-tax wages with the state that has an income tax, the difference is the state income tax.

ARE THE TAX CALCULATIONS ACCURATE?

All tax calculations should be correct, for a single filer, standard deduction, and no additional dependents. Eide Bailly LLP, a public accounting firm, was hired to build the spreadsheet that makes the tax calculations. If you find a discrepancy please contact us.