From Taxes to Deductions, Where Is My Paycheck Going?
Have you ever looked at your paycheck and wondered why the amount you are taking home is actually less than the total amount you earned? With the help of MoneySKILL, we outline how certain taxes and other pay deductions decrease the amount you are actually seeing go into your bank account.
State and local income taxes: In addition to federal and/or local income tax(s), 41 out of 50 states charge some type of state tax on income. Typically this tax is progressive, which means the tax rate increases as your income increases. Taxes paid to local and state governments are deductible items when figuring federal income taxes. That means your state income tax can be deducted from your gross income when you calculate your taxable income.
Social Security taxes: Approximately 6.2% of your earnings under $113,700 goes to pay for the Social Security checks you will get when you retire. In addition to the 6.2%, 1.45% of your pay is taken out to pay Medicare health insurance, which covers your medical expenses when you are over 65-years-old. The Social Security and Medicare health insurance tax is added together to equal 7.65%, and matched by your employer. This means if you make $50,000 per year you multiple that by 7.65%, and then double it, you will get the total amount you are paying per year ($7,650). It is important to note that in 2013 single taxpayers earning more than $200,000 per year and married taxpayers earning more than $250,000 per year must pay an additional nine-tenths of one percent for Medicare.
Deductions for health insurance: While not required, typically health insurance is offered by the company you work for if the company has over fifty employees. Companies offer various levels of health insurance to attract and keep good employees since it is cheaper for your employer to provide you with the health insurance then for you to purchase your own individual plan. Your marital status and number of dependents you have will determine your co-pay and various deductibles (you can find more specific examples in the MoneySKILL module).
Deductions for life insurance: Just like health insurance, life insurance is typically offered by employers as well through payroll deductions. Younger individuals may not see the importance of this, but individuals who are married and have children need to know their dependents will be taken care of should they pass away.
Deductions for retirement: There are multiple ways you can save for retirement. Typically employers offer their workers some type of retirement savings account. Each pay period, the employer will deduct a certain percentage of your paycheck (which you have agreed upon) and put it in a retirement savings account in your name. The types of retirement savings accounts have various names; 401k is most popular. Typically an employer will match or partially money you put into this account. For example, here at Mariner Finance we match employee’s contributions into their 401K 100% up to 3% contributed and 50% up to 5% contributed.
Other deductions: This could possibly be your parking fee or a charity you can agree to donate to.
Mariner Finance is committed to giving consumers the information necessary to make smart financial decisions. By teaming up with the AFSA Education Foundation, we are able to offer MoneySKILL—an easy, online program to help consumers understand their finances better. Sign up today!
