When we’re offered a job, the annual salary is among the most important factors we consider when accepting the offer. Understanding what a salary translates to in everyday life is an excellent way to know if the pay is suitable for you.
Suppose the job offers a salary of $40,000; let’s break down what that looks like from various angles.
- How Much is $40,000 An Hour?
- $40,000 Hourly With Two-Weeks of Unpaid Vacation
- $40,000 Hourly With Two-Weeks of Paid Vacation or No Vacation
- $40,000 Hourly With Holidays
- How Much is $40,000 Per Month?
- How Much is $40,000 Per Paycheck?
- How Much is $40,000 Per Year After Taxes?
- How Much is $40,000 Per Paycheck After Taxes?
- Is $40,000 a Good Salary, and How Does It Compare To The National Average?
- What’s An Example Budget On A $40,000 Salary?
- $40,000 Using 50/30/20 Budgeting Rule
- What U.S. States Should I Live In With A $40,000 Salary?
- What U.S. States Would A $40,000 Salary Not Be Enough?
- How Can I Make More Than $40,000 A Year Without A Degree or Certificate?
- How Should I Invest On a $40,000 Salary?
How Much is $40,000 An Hour?

If you earn $40,000 per year, the hourly rate will vary depending on a few factors, including hours worked, vacation time, and holidays. Below is a breakdown of each scenario.
$40,000 Hourly With Two-Weeks of Unpaid Vacation
Assuming you’re a full-time employee working 52 weeks out of the year, but you take two weeks of unpaid vacation time, your total hours worked will drop to 50 weeks worth of hours. Assuming that you work 40 hours per week, the total annual hours you work will sum up to 2000 (50 weeks x 40 hours). Now that you know how many hours you will work, you can go ahead and determine the hourly rate by simply dividing the salary by hours worked.
- $40,000 / 2000 = $20 per hour.
A $40,000 salary for a full-time employee who takes a two-week unpaid vacation earns $20/hour.
$40,000 Hourly With Two-Weeks of Paid Vacation or No Vacation
Contrary to the previous example, let’s assume you’re a full-time employee working 52 weeks annually. In this scenario, you either take two weeks off as a paid vacation, or you don’t take any vacations during the entire year. In both scenarios, your total hours worked will remain at 52 weeks worth of hours. If you work 40-hours per week, the total annual hours you work will sum up to 2080. From here, you can go ahead and calculate the hourly rate by simply dividing the salary by hours worked.
- $40,000 / 2080 = $19.23 per hour.
A $40,000 salary for a full-time employee who takes a two-week paid vacation, or no vacation at all, earns $19.23/hour.
This is the most common employment, so it is very likely that this is how much per hour of work you actually earn.
$40,000 Hourly With Holidays
Holiday pay can differ from state to state and company to company. However, most companies offer holiday time off for the leading national holidays. If you want to be precise with your hourly rate, you should include this in your calculations. Keep in mind that federal holidays and the corresponding time off will differ depending on where you’re located.
The seven major federal holidays in America are New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Friday after Thanksgiving Day, and Christmas Day.
Using this example, if you take all seven federal holidays off work, all else being equal, you will work 254 days in the calendar year. Now let’s break it down to calculate the hourly rate.
254 days worked x 8 hours worked each day = 2032 total hours worked annually.
- $40,000 / 2032 = $19.69 per hour.
A $40,000 salary for a full-time employee who takes off all seven federal holidays earns $19.69/hour.
How Much is $40,000 Per Month?

It is relatively straightforward to calculate your gross monthly salary out of your annual salary. However, you do need to keep in mind your monthly pay frequency to make this calculation more accurate.
For example, suppose you get paid biweekly on every other Friday. In that case, you will get paid either two or three times each month, depending on how many weeks are in that month.
If your pay cycle is semimonthly, you will get paid twice each month, typically on the 15th and the 30th, or two other predetermined dates.
A quick and straightforward way to calculate your monthly salary is by dividing the salary by the number of months you work (12).
- $40,000 / 12 = $3,333.33 per month
For more accuracy, divide the salary by the number of four-week periods (13).
- $40,000 / 13 = $3,076.92 per 4 weeks
How Much is $40,000 Per Paycheck?
To calculate how much each paycheck will total, you will first need to determine whether you will be getting paid semimonthly, biweekly, or weekly because the totals will change, respectively.
Semimonthly Paycheck
To accurately calculate how much your semimonthly paycheck will be, you will simply need to divide gross annual salary ($40,000) by the total number of paychecks. With semimonthly, you will receive 24 paychecks per year (2 per month).
- $40,000 / 24 = $1,666.67 per half a month
Biweekly Paycheck
To accurately calculate what your biweekly paycheck will total to, you will need to divide the total amount of months in the year (12) by the total number of paychecks. With biweekly, you will receive two additional paychecks, totaling 26. This means your biweekly paycheck will decrease slightly to compensate for the additional two.
- $40,000 / 26 = $1,538.46 per 2 weeks
Weekly Paycheck
The same formula applies to weekly pay cycles. To accurately determine your weekly paycheck amount, you will need to divide the total number of months in the year (12) by the total number of paychecks you will receive. Assuming the standard 52 weeks per calendar year, you will receive 52 paychecks.
- $40,000 / 52 = $769.23 per week
How Much is $40,000 Per Year After Taxes?
Calculating your annual net salary will depend on the state you live in and the tax brackets your salary is subject to. As of current, state taxes would reduce a $40,000 salary to anything between $31,100 to $33,800.
How Much is $40,000 Per Paycheck After Taxes?

Now that we’ve calculated your annual net salary, we can further calculate how much your net take-home pay for $40,000 would be on each paycheck. For example, consider the previous example where we calculated how much your paycheck would be after the necessary tax deductions.
Semimonthly Paycheck
To accurately calculate how much your semimonthly paycheck will be after taxes, you will simply need to divide your net annual salary by total paychecks.
- $31,100 / 24 = $1,295.83 per half a month
- $33,800 / 24 = $1,408.33 per half a month
Biweekly Paycheck
The same formula applies when calculating how much your biweekly paycheck is after taxes. Divide your net annual salary by total paychecks.
- $31,100 / 26 = $1,196.15 per 2 week
- $33,800 / 26 = $1,300.00 per 2 week
Weekly Paycheck
And the same formula applies here as well. To accurately determine how much your weekly paycheck will be after taxes, divide the total number of months (12) by total paychecks. Assuming the standard 52 weeks per calendar year, you will receive a total of 52 paychecks.
- $31,100 / 52 = $598.08 per week
- $33,800 / 52 = $650.00 per week
Where Does All The Money Go For Taxes?
Taxes that are deducted from your paycheck are considered payroll taxes. Your employer withholds them because they are responsible for transferring them to the government on your behalf. The percent of the payroll tax is based on your location, salary, hourly wage, and any other added income such as bonuses and commissions.
In addition to standard payroll taxes paid to the government, employers are also responsible for deducting an additional federal payroll tax that is collected by the International Revenue Service (IRS). Below is a breakdown of different taxes that are automatically deducted from each paycheck.
Federal Income Taxes
Otherwise known as your withholding tax, federal income tax, is another tax that is automatically deducted from each paycheck. It is deducted as a way of making payments to the IRS for your required annual income tax, which is calculated based on your income.
Every employee will pay tier respective amount which is dependent on their total annual salary and all other information that you would include on the W-4 form that is filled out during onboarding of a new job.
If your employer deducts too much, you will be reimbursed when you file your annual income tax return, and alternatively, if your employer did not deduct enough, you will be left with a balance owing to the government.
State Taxes
The percentage of state taxes is dependent on the state you work in. Keep in mind; not all states require a payroll state tax. The amount that is withheld is to contribute to various sectors and industries in your state. This includes:
- K-12 Education
- Medicaid and Children’s Health Insurance Program
- Higher Education
- Transportation
- Corrections
- Public Assistance
- All Other
Social Security
The federal government requires a social security payroll tax, and no working persons are exempt from contributing. The purpose of this tax is to provide funding and benefits to Americans who need Social Security assistance. The premise is that you pay into it during your working years to qualify to withdraw funds when you retire.
Employees and employers will pay their respective 6.2% off each paycheck, up to a taxable maximum of $142,800 in 2021. By 2022, this maximum salary will increase to $147,000.
Medicare
Like the social security payroll tax, all working Americans are required to pay into Medicare from each paycheck. This tax is essential because it is a government insurance plan designed to provide hospital, medical, and surgical benefits for all Americans 65 years of age and older and with specific disabilities.
Employees and employers will pay their respective 1.45% from each paycheck, or 2.9% total. The medicare tax does not include a salary limit; however, salaries of $200,000 or more (or $250,000 for married couples) are required to pay an additional 0.9%
Unemployment Taxes
Employment tax is your temporary safeguard against unemployment. If you lose your job, you can apply to the federal government for unemployment insurance. If approved, what you are paid every month is a percentage of what you paid into your unemployment tax.
Employees pay up to 6% with a maximum of $7,000 annually.
Retirement Savings Plan
Your 401k plan can be considered your payroll retirement savings plan. This is optional and is decided by you. The premise is to set money aside for retirement. Your employer must be informed of the percent you prefer to be deducted from each paycheck.
Which States Have No State Income Tax?

An excellent way to make the best out of a $40,000 salary is to live in a state that doesn’t tax wages. According to recent data, seven states in total don’t tax wages on their working population.
Alaska
Alaska is often sought out as a place of residence because they have no sales or income tax. The total state tax burden on its citizens is only 5.16%. This low rate makes Alaska an attractive option for workers wanting to make the best out of their $40,000 salary.
Florida
Florida is a popular destination for both the young and older working-class likely due to their overall tax burden being only 6.82%. While this is among the lowest rate in America, Florida ranks 35th in affordability, making it far more expensive to live than most places. So a $40,000 salary may not be suitable here if you’re looking to save money.
Nevada
Due to Nevada’s high sales tax, the state can leverage the ability to have no income tax. The overall tax burden in Nevada is 8.39% which is the highest on the list of American states with no sales tax, but still relatively low.
South Dakota
South Dakota is an excellent option if you’re looking to save money on a $40,000 salary, considering it’s the most affordable to live when compared to all states with no income tax. The overall tax burden for South Dakota residents is only 7.68%
Texas
Luckily for Texans, the state earns revenue by imposing a standard sales and excise tax, allowing the overall tax burden to be as low as 8.40%. Additionally, Texas is among the 19 most affordable states to live in, making it an excellent residence for a modest salary.
Washington
While residents pay higher than average sales and excise taxes, the overall tax burden is only 8.32%, making it a desirable location. The state ranks in 44th place with respect to its affordability, meaning the overall cost of living is relatively high, particularly for a $40,000 salary.
Wyoming
Wyoming has the fourth-lowest overall tax burden, which is 6.47%. What makes this state more attractive for modest salaries is that it ranks 28th in affordability.
Is $40,000 a Good Salary, and How Does It Compare To The National Average?
The average salary in America is $56,310, meaning $40,000 is below average. However, the value of a salary differs based on your location and cost of living. If you live in a more affordable state, you will get more out of a $40,000 salary than you would in a more expensive state. In addition, the value of a salary can be measured by individual circumstances. If you’re single, with minimal monthly expenses, and your skills are valued at $40,000 in the labor market, this salary would be considered good.
Moreover, a $40,000 salary can be classified as good or bad, depending on the industry or the employee’s skill set. For example, some industries pay higher than others; therefore, you need to determine the industry and position standards to conclude a fair salary assessment.
What’s An Example Budget On A $40,000 Salary?

Many financial planners will recommend you use the 50-30-20 rule for most average salary budgets. It’s a simple system with three main categories, making it straightforward to follow.
A great app to make your budgeting easier and more organized is Mint, and we highly recommend reading about it here in our post. The great thing is, it’s completely free.
Your budget should include the following categories;
$40,000 Using 50/30/20 Budgeting Rule
Needs – 50%
This category should include all your necessary expenses, including; rent/mortgage, groceries, health insurance, transportation, debt payments, and utilities.
50% of your net salary should be designated to this category. Anything over should be reevaluated.
It’s important to know which expenses are essential and which don’t improve your quality of life.
Wants – 30%
“Wants” is an important category because you don’t want to deprive yourself of buying things or doing things that make you happy. This category will include expenses such as; eating out, leisure & entertainment, shopping, vacations, and gifts.
30% of your net salary should be designated to this category. Anything over should be reevaluated.
Using the 1% rule serves as a great guide for large purchases and can save you significant money in the long term.
Savings – 20%
The remaining 20% of your net income should always go toward a savings goal.
Prior to designating the entire 20% into savings, you will want to make sure you paid down all your large balance debt accounts such as student loans, medical bills, and credit cards.
Once they are paid off, then allocate the entire 20% toward savings.
If you need help allocating your savings in a smart manner, we recommend reading up on Credit Karma’s savings account as well as our ultimate guide to index funds.
Both of these can be excellent options depending on your personal finance goals.
What U.S. States Should I Live In With A $40,000 Salary?
Living in an affordable state will help you get more utility out of your salary when your income is less than the national average salary. According to recent studies, some of the most affordable states are; Mississippi, Oklahoma, Arkansas, Kansas, Missouri, New Mexico, Tennessee, Michigan, Georgia, Alabama.
Living in any of these states could help you get the most out of your salary. Keep in mind, you should know what the average salary for your job is in each state. While it’s not always the case, salaries tend to drop in more affordable states.
What U.S. States Would A $40,000 Salary Not Be Enough?
While $40,000 is a modest salary that can sustain a modest lifestyle, living in an expensive state will reduce its value. According to recent studies, some of the most expensive states to live in are; Hawaii, California, New York, Oregon, Massachusetts, Alaska, Maryland, Connecticut, New Jersey, Rhode Island.
All of these states require a relatively high-ranking salary to meet the high cost of living.
- Hawaii average salary = $73,973
- California average salary = $62,356
- New York average salary = $65,904
- Oregon average salary = $45,530
- Massachusetts average salary = $74,188
- Alaska average salary = $69, 750
- Maryland average salary = $66,710
- Connecticut average salary = $47, 630
- New Jersey average salary = $58, 149
- Rhode Island average salary = $71, 365
It would be best if you always considered the average salary and average cost of living in a state as a way of measuring how good or bad your salary is.
How Can I Make More Than $40,000 A Year Without A Degree or Certificate?

It’s not always the case that you will need to have a degree or a certificate to earn a decent salary to sustain your lifestyle. According to Monster, the following list of careers don’t require a college degree and can earn you, on average, a starting wage of $50,000 or more.
- Shop Service Manager: You typically need a high school diploma and four to six years of working experience. The average salary is $93,400, which is dependent on the state and years of experience.
- Title Examiner: You typically need a high school diploma and a minimum of four years of working experience. The average salary is $60,400, which is dependent on the state and years of experience.
- Grinder: Typical requirements are a high school diploma along with four to six years experience. The average salary is $69,500, which is also dependent on location.
- Tool and Die Maker: The standard requirements are a high school diploma and four-six years of experience, depending on the company. The average salary is $65,800, depending on location and company.
- Sanitation Supervisor: The typical requirements are a high school diploma and four years of experience. The average salary is $62,700.
- Hotel Manager: The typical requirements are a high school diploma and at least four years of experience. The average salary is $57,900.
This is just a small list of careers that don’t require a degree. In fact, most trades jobs and many other industries are starting to favor experience over extensive college credentials. Trades will typically require a certificate from an accredited trade school, which is far quicker to obtain and more affordable than a four-year college degree.
How Should I Invest On a $40,000 Salary?
You don’t need to have a substantial salary to begin investing money. The earlier you start, the better. According to personal finance experts, you should be investing at least 15% of your gross salary. To ensure your investments are a priority, they further recommend you rewrite the 50-30-20 rule into a more suitable 50-15-5 rule.
It should look something like this;
Needs – 50%
Like the 50-30-20 rule, 50% of your salary should go toward necessary expenses.
Retirement Investments and Savings – 15% + 5%
This category should be reserved for 15% of your salary dedicated to investments for your future and retirement. An additional 5% of your salary should then be dedicated to savings.
You will notice that there is a 30% residual income left over. Like the 50-30-20 rule, that 30% can go toward “wants.” If you have a surplus in this category, it is advised to allocate it to paying down debts, then into investment accounts. Investments are essential in all budgets and should be prioritized alongside debt management.
A few options to invest in for your future are to open up a 401K account or a tax-advantaged IRA. The great thing about these accounts is that you determine how much you want to invest, and you can stop payments at any time. Despite what your salary is, always allocate between 5%-15% into investments, and continue increasing it as your salary increases and debts decrease.