Dissecting Your Paycheck
March 12th, 2014 | Comment
I remember receiving my first significant “real world” paycheck after college. I called my mom from work practically yelling what I made the first month. It was not much; I was a teacher, but excited nonetheless. So, the salary was not anything to brag about, but it was the first paycheck with a large sum of money earned in one month. Did I really understand what was in my paycheck? Or rather did I know what was being subtracted from my gross earnings? No, I didn’t. I simply trusted everything was correct and fair. Don’t be caught by surprise! Know what’s coming out of your paycheck.
Here is what you may expect to see on your pay stub/statement:
Gross Earnings – The amount you earn per pay period (monthly, biweekly, or weekly) before anything is subtracted known as before taxes (and other deductions).
Net Earnings – The amount you receive per pay period after anything is subtracted known as after taxes (and other deductions (e.g. retirement)).
YTD – This will let you know how much you’ve cumulatively earned (year-to-date) since accepting employment at the company.
FICA (Federal Insurance Contributions Act) – Funds Social Security and Medicare programs that protect our elderly. What it means for you is that in 2014, the current tax rate is 6.2% for the employer and employee to fund Social Security (12.4% total) and 1.45% (for the employer and employee totaling 2.9%) of your paycheck goes to Medicare.
Federal Income Taxes – Each tax rate applies to a specific range of taxable income, which is called a tax bracket. Taxable income is total worldwide income after various deductions have been subtracted. It varies depending upon how you file your taxes such as single, married (jointly or separately), or head of household. Below is an example of the tax bracket:
- 10% on taxable income
- 15% on taxable income
- 25% on taxable income
- 28% on taxable income
- 33% on taxable income
- 35% on taxable income
- 39.6% on taxable income
State Income Taxes – The amount paid to the state in which you live which varies from state to state. If you’re lucky, you may not pay state income tax. There are seven states without state income tax. Beware: these states make up for lost revenue by increasing state sales tax. North Carolina collects income taxes from its residents utilizing a flat tax rate. Effective Jan. 1, 2014, individual taxpayers will pay a flat tax rate of 5.8 percent.
I encourage you to visit the state’s Department of Revenue to which you plan to move after graduation. The site will give you tax bracket information plus extra tax resources such as property tax. Did you know property tax sometimes includes pets? Yes, you can be taxed for owning dogs at least in Stokes County, NC. So, you may have to claim the number of pets you own.
Also, employers are required to withhold and pay personal income taxes on wages, salaries, bonuses, commissions and other similar income paid to employees. If you receive an annual bonus or a monthly commission, then your employer will withhold a % of earnings for taxes.
401(k)/403(b)/401(a) – The amount taken out for retirement. If you’re lucky enough to work for an employer who allows you to deduct a portion of your paycheck to start saving for that part of your life now, take it and never stop thanking them. If they’ll match a portion of your retirement savings, that’s even better. Statistically, money put in a retirement fund doubles every 8 to 10 years, meaning that money you sock away for retirement now will actually count more than money you save later. This is financial compounding.
Employer Benefits – Benefits may include medical, dental, vision, among others depending upon the employer. If you elect to participate in an employer benefit such as a medical plan, then your contribution will be subtracted from your gross pay (before taxes).
Charitable Contributions – Sometimes you can have money deducted for a charitable cause such as United Way. You can set up a payroll deduction. The money will be automatically deducted from your paycheck (e.g. biweekly or monthly).
If you notice a mistake, notify your supervisor and human resources department or accounting (e.g. payroll services) department immediately.
Don’t be disappointed when you receive your paycheck. Celebrate your first “real world” paycheck with friends, not alone with a box of mac-n-cheese. Be prepared. Be knowledgeable.
Category: Professional Development