Everyone loves to get a paycheck, but it can be surprising to see just how little of the money you can keep, and how much is held back in taxes and deductions. According to the United States Treasury, most people have around a third of their paycheck deducted. This can vary greatly depending on a person's income and the state they live in, but is a good general rule of thumb
Understanding Your Paycheck
Employers should provide a detailed breakdown of your pay, whether you are paid by check or electronically. The pay stub contains a lot of useful information, which will show you exactly how much of your paycheck is being deducted. The stub includes gross pay, which is pay before any deductions are taken out, as well as net pay, which is what is left once deductions have been taken out. The individual deductions are also written out clearly.
When you started at your job, you completed a W-4 form, also known as a Withholding Allowance Certificate. The information that you provide on your W-4 determines your federal tax deduction. Depending on the number of allowances you list on your W-4 will allow the IRS to estimate how much tax you will owe at the end of the year, and deduct some of that money as you earn. Federal taxes start at 10 percent on the first $7,000 of income, and income above that is taxed at increasingly higher rates.
Medicare and Social Security
Medicare and Social Security are required deductions by the federal government. For 2011, employees deduct 4.2 percent of their paycheck to go toward Social Security. They also deduct 1.45 percent for Medicare. However, employers are at least matching your deduction. For Social Security, employers must contribute 6.2 percent of an employee's paycheck as of 2011, bringing the combined Social Security contributions to 10.4 percent. Employers contribute 1.45 percent to Medicare, bringing combined contributions to 2.9 percent of earnings.
State Taxes and Other Deductions
In addition to federal taxes and other federal withholding, a number of other deductions might show up on your paycheck. States tax at widely varying rates, from nothing in some states to 11 percent on top earners in Hawaii. According to "Forbes" magazine, 43 states collect income tax from their residents, and the average rate is 6.5 percent. In addition to tax deductions, some employers offer deductions for retirement savings, health savings and even transportation.
What Percent of Taxes Is Deducted From My Paycheck?
Almost everyone who works for a paycheck has taxes deducted each payday. There is no single percentage of taxes taken out of...
What Taxes Are Taken Out of a Paycheck in Illinois?
Illinois employers must deduct certain taxes from each employee's paycheck. Both state and federal laws dictate conditions and amounts for payroll deductions....
What Are the Deductions From Gross Pay?
If you receive a W-2 from your employer, or if you carefully examine your pay stub, you will find that your gross...