You just got your first paycheck and — surprise! — it may be quite a bit smaller than you expected. Don’t worry, though, nothing is wrong. Your employer has simply deducted a number of required (and possibly some elective) payroll-related charges. That’s why you see so many deductions listed on your pay stub.
Here are some terms related to your paycheck that you may want to understand, as well as a breakdown of what’s typically deducted and why.
Gross pay: This is the amount of your paycheck before any deductions were taken out. For example, if you earn $45,000 a year and are paid monthly, your gross pay should be $3,750 ($45,000 divided by 12 months). If you’re paid twice a month or every two weeks your gross amount will be slightly different (see “Pay period:”)
Net pay: “Net” means the amount of money leftover after taxes and other deductions are subtracted. This is the actual amount you can cash or that is automatically deposited into your bank account.
Pay period: This signifies how often you’re paid. Common pay periods are monthly, biweekly, semimonthly or weekly.
Filing status: When you filled out the necessary paperwork to begin your job, you completed a W-4 form. At that point, you could note whether you are married or single for tax purposes. Single or married may seem like obvious choices, but there are a few gray areas. The American Institute of CPAs (AICPA) highlights some things to consider when selecting your status.
Plan for the Future
Federal taxes: The filing status (see above) you selected on your W-4 helps your employer calculate how much to withhold from your pay for federal income taxes. The amount you see indicated as “Federal Tax Withholding” on your pay stub is what your employer will send to the Internal Revenue Service (IRS) on your behalf. When you file taxes next year, you’ll find out the amount of federal tax withheld — or whether you owe more in taxes or get a refund. Everyone pays a different amount in federal taxes, depending on their income.
State and local taxes: This deduction is very similar to federal taxes, except that it may be a smaller amount. This is the money your employer sends to your state and city or county revenue division on your behalf. How much you pay in state and local tax depends on your income and your state’s or municipality’s tax rates.
Social Security or the Federal Insurance Contributions Act (FICA) tax: You are legally required to contribute to Social Security, which is the U.S. supplemental retirement program. It’s listed on your pay stub as FICA. As of 2016, you contribute 6.2 percent of your gross pay (minus your pre-tax health care premiums deductions) to the program. Your employer contributes another 6.2 percent on your behalf.
Medicare: This is another legally required deduction listed under the FICA heading. This amount goes towards Medicare, which is the U.S. medical insurance program for retirees. Your required contribution is 1.45 percent of your gross pay (minus your pre-tax health care premiums deductions), and your employer pays the same amount on your behalf.
401(k) or 403(b) contributions: If you are eligible to contribute to your company’s retirement plan and signed up to have money automatically deposited into it, you will likely see this deduction listed on your pay stub. The amount will depend on what percentage of your pay you opted to contribute. Many workplace retirement tax withholdings are considered “tax-deferred” — meaning that you don’t pay taxes on them until you actually withdraw the money from your account. As a result, these deductions may slightly reduce how much you pay this year in federal taxes, explains the AICPA.
If your company offers a match on the money you contribute to your retirement plan, you will likely see it listed on your payroll statement, too. However, that amount won’t be deducted from your paycheck since your employer pays for it.
Employee-paid health insurance premiums: If your company pays 100 percent of your health insurance costs, you won’t have any money deducted from your paycheck. However, if you pay a portion of your health, dental or vision benefits, your share of the cost will be deducted from your paycheck, according to the AICPA. The average American worker pays $89 per month in health insurance premiums. Your “premium” is the amount you pay on a regular basis for your insurance.
Other deductions: If you are paying for other company-sponsored benefits, such as life or disability insurance, you’ll see these premiums listed as deductions from your paycheck. Depending on the plan, these costs may be deducted either before or after the taxes on your paycheck are calculated. If your company offers a Flexible Spending Account (FSA), you may be able to contribute money to either a health care or dependent care account on a pre-tax basis (meaning you don’t pay taxes on the contributions). These amounts will be deducted from your pay and listed on your pay stub.
Year-to-date earnings: As it implies, this item details how much gross pay you’ve made so far this year — excluding your current pay stub, says the AICPA.
For more help understanding any of the items on your payroll statement, contact your company’s payroll or employee benefits office.
The post Here’s to Firsts: Understanding Your First Paycheck appeared first on The Allstate Blog.
from The Allstate Blog https://blog.allstate.com/htf-understanding-your-first-paycheck/
via IFTTT
from WordPress https://robertnmaker.wordpress.com/2016/05/02/heres-to-firsts-understanding-your-first-paycheck/
via IFTTT
No comments:
Post a Comment