Everyone loves payday! That is, until you look at your check and realize it’s significantly less than you were expecting. Sure, you’re making $50,000 per year, but that’s not anywhere close to what is actually deposited into your bank account. Paycheck taxes can definitely take the wind out of your paycheck sails, and you can thank Uncle Sam for most of that.
Though not all paychecks are alike, but there are certain elements that are taken out of everyone’s paycheck. Still, it’s worth it to double check your stub to ensure there isn’t more money being taken out than is necessary.
Here’s the breakdown:
Starting Gross Pay:
If you are making $35,000 a year and are paid every two weeks your paycheck should be $1,346.15 each pay period. This is your gross pay, or the amount you have before deductions and withholdings.
1st: Federal Income Taxes
Federal income taxes apply to everyone. How much is taken depends on the number of tax exemptions you claimed when you filled out a W-4 on your first day of work. The more allowances you have, the less taxes come out of your paycheck. However, if you claim too many deductions, you’ll be left with a hefty tax bill on April 15th. If you claim less, you’re more likely to get a return.
2nd: State Income Taxes
Unless you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you’ll have another line deduction for state income taxes. This is a flat rate tax that varies by state.
3rd: Social Security & Medicare
These two federal programs are funded by almost all hard working Americans. The deductions are combined and labeled as FICA (The Federal Insurance Contribution Act). The rates of these contributions fluctuate somewhat, but currently it’s about 6.2% for Social Security and 1.45% for Medicare. Although this can be a frustrating deduction for employees, the employer has to pay the same amount.
4th: Voluntary Deductions
This is where you have a little more control over what is coming out of your paycheck. If you have opted in to your employer’s insurance or 401(k) plans, those are taken out of your paycheck as well.
5th: Involuntary Deductions
There are other items which can be withheld from your paycheck like child support, defaulted student loans, taxes, and unpaid court fines.
Whatever is left over after the five main deductions above is your net pay, or the amount that you actually get to take home, after all deductions. If you just started a new job or are curious about what you could be earning. Look for a net pay calculator online to get an accurate expectation of what your salary actually pays.