Where is Your Money Going
Where is Your Money Going
Looking back on the day I got my first pay stub I remember myself being filled with elation and shock at the same time. It was my first job during the time I was a freshman at university and I was earning around $12 and excited at the prospect of making $480 that first week, until I saw my paycheck...
Paychecks can be very confusing, because looking at them initially they look like a lot of tables and numbers, but after a bit of careful inspection you should be able to decipher what's going on. It can initially seem incomprehensible because some companies use acronyms you may not be familiar with. This happened with my very first paycheck, it was easy to understand after a while the Feds got a chunk, the state got its chunk but there was a "FICA" taking a chunk of my paycheck and I didn't know who that waswho is FICA?
Deciphering Your Paycheck
There are two sections on a paycheck earnings and deductions. The section named earnings describes any income you've earned in the specified pay period. It shows your rate and the amount of hours you've worked during the pay period. It's a fairly straightforward section and it represents your Gross Salary.
The second section, known as your Net Pay is basically your Gross Pay intake minus any deductions. Deductions are further categorized into 2 sections: Required (statutory) and something named Other deductions.
Required or Statutory Deductions
These are deductions for State and Federal taxes, Social Security and Medicare. You can't change or control these deductions but you can your Federal and State taxes are deducted according to the quota of exemptions you claim when filing your w-4. If you feel you're paying a lot in taxes, you can adjust your withholding. There are calculators to aid you in determining whether you're withholding excessively. Simply looking at federal income tax brackets and performing some simple calculations won't do it.
Social Security and Medicare are listed under my good friend "FICA" and these can't be adjusted. About 6.2% of your salary will be deducted in 2010. Up to $106,800 in yearly earnings may be deducted from your pay check for Social Security and 1.45% will be deducted for Medicare taxes. They may be listed on your paycheck as a FICA deduction. Basically FICA (Federal Insurance Contributions Act) covers the "Other deductions" featured on your paycheck.
Any deduction from your pay check will be found in "other deductions" such as dental insurance, medical insurance, disability insurance, retirement funds and "others". You can adjust these by altering the reasons for them for example you can reduce your retirement contribution and this will result in a smaller deduction.
In the Other deductions section, some deductions are exempt from federal taxable wages. For example on ADP paychecks an asterisk (*) near the dollar symbol means that the deduction isn't taxed by the federal government.
Other Benefits
This last category of your paycheck doesn't contain salary information but it provides a list of any benefits you may have, for example: sick leave and vacation time. Some companies keep records of your time off for sickness or vacation separate, others group them into one category and refer to this category as "Paid Time Off" (PTO). Any hours you have accrued or used will be listed in this final section of your paycheck.
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