Every paycheck you get usually comes with a pay stub. This is simply a piece of paper that shows the amount of money you earned for a particular month and the amount that was removed for taxes and insurance costs.
The pay stub usually comes with codes for earnings and deductions. For some people, it can be rather challenging to understand the pay stub deductions. It's important to know what amount is being withheld and why. This post is going to cover some of the typical deductions in pay stubs to help you know exactly what they mean. Read on to learn more.
1. Understanding Pay Stub Deductions: Fica Med Tax
You may be questioning why you're not getting as much as you expected when you landed your job. Well, the Federal Insurance Contributions Act (FICA) has a share in your pay. This is a federal payroll that deducts money from your salary to contribute to Medicare program. These deductions are used to run the program for those aged 65 years and older.
2. Fica SS Tax
As long as you're employed, you're legally obligated to contribute to the Social Security program. That's what this deduction is for. Social Security provides support to eligible beneficiaries, particularly those with disabilities and retirees. You can only claim SS benefits when you hit the retirement age, which is 67 for millennials.
3. State Tax
On your pay stub, you'll notice the state taxable wages column. If there is a specified amount in this column, then your state allows state taxes. It will be blank if your state doesn't allow state income tax. Texas, Nevada, Alaska, Florida, and Washington are some of the states that do not levy an income tax.
4. Federal Tax
Apart from Medicare and Social Security pay stub deductions, the federal government also takes its share. However, the amount varies depending on your number of allowances and tax rate. It also depends on your retirement contributions and pre-tax expenses on health insurance and other employee benefits.
5. State Disability Insurance (SDI)
In California, all workers are subject to this deduction. If you're covered by SDI, you can benefit through Paid Family Leave (PFL) and Disability Insurance (DI). Under the program, you're eligible to receive a percentage of your salary when taking a family or disability leave.
6. Miscellaneous Deductions
Your pay stub will also show other deductions, including retirement, cafeteria plan, and health insurance, that you have signed up for. These items usually come before your taxes, and you can reduce your taxable income by signing up for them.
Pay Stub Deductions - The Bottom Line
If you're just starting out on your first job, it's usually important to understand all the deductions. Keep in mind that the details of your paystub will differ depending on your state. This is because there are state-mandated deductions, such as SDI in California and Educational Retirement Act contributions in New Mexico.
You may also enjoy reading what you need to know about retirement contributions. However, If you feel your pay stub deductions are incorrect, make sure you take it up with the relevant authority. Ready to create your pay stub? Try our tool now!