Your Paycheck Breakdown

What is FICA anyway?

Oct 8, 2019


Knowing your pay and how it is allocated is very important. After you receive your pay stub, you will notice a vast difference between your gross pay (the total amount earned) and your net pay (the total amount earned after deductions).  For example, if you’re paid $10 an hour and work for 20 hours a week, your gross pay will be $200. If you are salaried, your gross pay is a flat number such as $500 a week. Deductions like taxes, health benefits, and retirement accounts will reduce the amount you actually receive, or net pay, in your paycheck.  

REQUIRED DEDUCTIONS  

  • FEDERAL, STATE, LOCAL TAXES. Varies based on where you live and how many deductions you claimed on your W-4 form. A W-4 can be changed at any time for an increase in allowances, but if the amount of allowances decrease you have 10 days to update the form. Each withholding allowance reduces the amount of taxable wages and results in less federal income tax withheld from a paycheck.
  • MEDICARE. A portion funds Medicare, which provides health insurance for Americans age 65 and older. Every American worker must contribute 1.45% of their gross income to Medicare.  Every employer then contributes an additional 1.45% on behalf of each employee.
  • SOCIAL SECURITY TAX. By law, all working Americans must contribute to Social Security, which provides supplemental income to retirees. Currently, the Federal government requires all employees to contribute 6.2% of their gross income into the Social Security fund. Your employer matches that with a 6.2% contribution of your gross income.
  • SDI (STATE DISABILITY INSURANCE). Not all states collect it, but the ones that do use it to fund disability benefits for workers who can’t work due to injury or other disability.
  • SUI (STATE UNEMPLOYMENT INSURANCE). Varies from state to state and is used to fund unemployment benefits.  

OTHER DEDUCTIONS  

  • MEDICAL, DENTAL, AND VISION INSURANCE. Your employer may offer some or all of these benefits, and it’s likely you’ll have to pay a premium to receive them.
  • RETIREMENT SAVINGS PLAN. An account you can set up through your employer, like a 401(k), that allows you to save money, tax free, towards retirement.  Employees can choose how much they want taken out of their paycheck and how their funds are invested. Some employers have programs that match the 401(k) contributions of their employees.
  • LIFE INSURANCE. If you purchase, life insurance will pay a portion or more of your salary in benefits upon your death.
  • DISABILITY INSURANCE. If you buy in, you’ll be paid if you are unable to work due to illness or injury for a short or long term.  If depends upon the type of plan you choose.
  • ADDITIONAL DEDUCTIONS. Healthcare flexible spending accounts, stock plans, and tax-free commuter benefits.  

Be sure to double-check your pay stub to ensure that the wage and hours worked are correct. If you see any problems, talk to your HR representative. Each pay stub includes year-to-date fields for each withholding category so you can track how much money you’ve paid for taxes, Social Security and Medicare throughout the year. Many employers include a similar listing for contributions to retirement savings plans and health plans.  

A pay stub also lists gross and net income to-date. This allows you to track how much money you’re making (gross pay) and how much money you’re actually taking home after taxes and other deductions (net pay) throughout the year. You can use this information to build a spending plan, work on reducing your debts or start saving for the future.  

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