That wonderful starting salary at your new job may be a lot lower than you expect once you factor in taxes and other payroll deductions. Here’s your guide to understanding what’s taken out of each check, and why your net salary may have you feeling cheated.
Your “gross” salary is the amount before payroll deductions and the “net amount” is your actual take-home pay. To get a true sense of the value of your salary after the following deductions, estimate your net pay using this paycheck analyzer.
FEDERAL INCOME TAXES
Federal taxes are calculated as a percentage of your income. You decide just how much of your paycheck goes into Uncle Sam’s pocket when you fill out a W-4 form. Withhold a lot and you get less in each paycheck, but you get a bigger refund once you’ve submitted your tax return in the spring. Withhold too little and you’ll get less of a refund, and possibly have to pay a big tax bill. Find out if you are withholding the right amount with this calculator.
STATE AND LOCAL TAXES
Some states don’t withhold state income tax at all. You’ll have to do a little research on your own state to see how much is taken out, and how this money is spent.
Local taxes are paid to the county or municipality where you live. These taxes also may include an occupational tax, which you pay if you work in a city, even if you don’t reside there.
SOCIAL SECURITY AND MEDICARE
Who is FICA anyway? A law called the Federal Insurance Contributions Act (FICA) requires that you make contributions to Social Security and Medicare out of every paycheck. The Social Security tax rate for employees is currently is 6.2 percent on income up to $117,000 and the Medicare tax rate is 1.45 percent of all income levels.
Each state has its own workers’ compensation laws and programs. “Workman’s comp” provides payments for medical and rehabilitation expenses due to on-the-job injuries and job-related illnesses. Workers’ compensation also provides disability payments if you are unable to work.