Every working American gets a paycheck, but do you know and understand everything that goes into (or comes out of) what you are able to put in the bank? We’ve developed a quick guide to highlight what each part of your paycheck really entails.
- Gross Pay: This is the total amount you earn based on your annual salary or hourly wage. Taxes and voluntarily withheld items are not deducted.
- Deductions: Any amount that is taken out of your paycheck. Examples include taxes, employee benefits, and retirement plan contributions.
- Federal Income Tax: This amount is determined by your W-4, and is required by your employer to withhold from your wages to pay federal taxes. If you do not fill out a Form W-4, you will be taxed at the highest rate, which is “Single/Zero”.
- State Income Tax: This is a percentage deducted from an individual’s gross pay to contribute to state income taxes. Only Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, Tennessee do not have state income taxes.
- Local Tax: Local tax varies depending on your state and local jurisdiction. Several states have very complicated local tax structures, including Michigan, Pennsylvania, and Ohio. Most states do not impose a local tax. To check if your state imposes a local tax, click here and find your state.
- FICA: The Federal Insurance Contribution Act is comprised of two parts: Medicare and Social Security. Both are calculated based on a percentage of wages earned. The Social Security Wage Base changes every year, and PaycheckCity Calculators are always up-to-date with the latest information.
- Voluntary Contributions: Your voluntary contributions consist of items you voluntarily sign up for, like health insurance, dental and vision insurance, and retirement plans.
- Involuntary Items: Involuntary items are also withheld from your paycheck. These can include child support, defaulted student loans, taxes, and unpaid court fines.
- Net Pay: This is what you get to take home, after all deductions.
If you want to find out what your Net Pay will be, take a look at the PaycheckCity calculators. They guide you through a line-by-line process, and give you an accurate expectation of what you will take home every paycheck.
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These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.