How to Understand Paycheck Deductions

If you are like many Americans, you notice that your paycheck starts out looking pretty good, then tends to shrink after deductions. Let's look at where they money goes. The deductions can be broken down by the standard and benefit, or miscellaneous, deductions.

Things You'll Need

• Copy of pay stub

Instructions

1. To start with, you have your gross earnings. This is the amount you earn based on your pay or salary including any overtime. This is usually substantially higher than the next pay, which the amount after the deductions have been taken.

2. 

   Standard deductions include: Federal income tax-this is tax that is charged to you based on your gross income minus any "pre-tax deductions," such as retirement plans, 401K, etc., FICA-which is a contribution fund that pays Social Security and Medicare. Combined the rate is 7.65%. State tax- which varies by each state, and City or local taxes which also vary by where you live and work.

3. 

   Miscellaneous deductions include benefit plans that are offered by the employer. You are not required to enroll in these plans, but it is usually a good idea to take full advantage of these programs - especially if they are calculated at a pre-tax rate.

4. If you see deductions on your payroll stub that you do not understand, you should contact your benefit or human resources department. Each company offers different plans and rates.

Tips & Warnings

• Contact your human resources department for full information.

• Always view your pay information for error even if you receive direct deposit.

• Information and rates subject to local and state tax.