Understanding Your Paycheck Withholdings

When you get your first paycheck, you may be surprised at the different paycheck deductions. It is important to understand the breakdown of what is being withheld and what it is being used for. Checks may vary slightly from company to company, so if you have any additional questions, you can ask your human resources department. You should be aware that some companies run a month behind on paychecks, so any changes in hours, pay or benefits may be a month behind. When you get a ​raise you may not see as much as you thought in your take-home pay, because your tax rate may go up depending on the size of your raise. Understanding your paycheck can help you understand why this happens.

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Regular Pay

Hands Holding Open Wallet
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The amount that you were paid for the last pay period. This is the amount that you are paid before any pretax deductions. If you are on salary, this should be the amount that you were quoted. If you are paid hourly it should be equal to the number of hours you worked times your hourly wage. If you are paid on a monthly basis, then this will likely be the same amount each month. It may be different from week to week and it will affect how much is deducted from your taxes. If you are paid every two weeks, you may end up with a few extra paychecks each year. It is important to monitor your overtime pay too. Some employers will try to save money by shaving off a few minutes each day. If this happens, you should dispute it. It is important to carefully document your hours so that you can compare them to what is being reported on your time cards. 

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Other Types of Pay

Near your regular pay box, you may see boxes labeled with overtime, holiday and sick pay. This can show the hours you have accrued, or that may come on a separate statement. This will list any of the hours that you used during this pay period. The overtime wage should be calculated at time and a half. It is important to monitor the number of vacation and sick days you have accrued. If you quit your job or you are fired, you should be paid for the days you have accrued. Be sure to check the policy with your employer to make sure you receive the amount you are due when you leave your job. 

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Federal Taxable Wages and Withholding

This is the amount of your paycheck that you are taxed on by the federal government. Your pretax deductions (medical and dental insurance, retirement and flexible spending accounts) should be subtracted from your regular pay to equal this amount. The withholding amount is the amount of taxes that you are having withheld. You can also track to see how much was withheld year to date. One of the reasons it is good to sign up for health insurance and save for retirement through your work is that it reduces your taxable income, which means you will pay less in taxes. Take the time to review your benefits package when you start working or during the open enrollment period.

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State Taxable Wages and Withholding

The state taxable wages column shows the amount that your state will tax you on. The withholding column shows the amount that the state withheld. The state taxes will be on your net pay instead of your gross pay. If your state does not have income taxes, you will not see anything there.

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FICA or OASDI Taxable Wages and Withholding

Some companies will refer to this tax as FICA (Federal Insurance Contributions Act) or as OASDI (Old Age, Survivors and Disability Insurance program). These are the same program. The money that is taken out is matched by your employer and paid into the social security system. You may start receiving a benefit statement from the social security system every few years that explain what your benefits will be, but this will come through the mail and is separate from your paycheck. 

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Miscellaneous Withholdings

You will see several smaller boxes that will be labeled with the various other deductions, which should include health insurance, retirement, and any cafeteria plan benefits that you may have signed up for. Your flexible spending account deductions should be here too. These items will come out before your taxes, and you may be able to reduce your taxable income by signing up for them. It is also a good idea to check to make sure the correct amount is being withheld each month, especially when you first start working. Then if you can check if the amount that you are paid suddenly changes. If you are paying for things such as your bus pass with your paycheck, it will be listed, as well, though these items are not tax deductible. Be sure to review your pay stub on a regular basis to make sure everything is being taken out correctly so you do not end up owing a lot in taxes.