WHERE DOES THE MONEY GO?

If you're an employee, you're earning a paycheck and you have to pay taxes on your earnings. You'll quickly discover that the salary you've agreed to isn't exactly what you bring home. Taxes, benefits and other deductions are all taken out of your check before you ever see it.

Most paycheck notices will include both current pay period amounts, as well as year-to-date amounts (what you've earned, had deducted, etc., since January 1). These are helpful for budgeting and income tax planning throughout the year.

CHECK OUT YOUR PAYCHECK

Here's a sample paycheck. Yours may look different, but it should contain most of the same valuable information.

click on the numbers below to see what's what

Pay information:

Pay period, check date and number, etc.

Employee Information:

Your name, address, Social Security number, company ID number, department.

Tax Data:

Marital status, allowances/exemptions and additional tax withholding information from the Form W-4 you complete when you start a new job.

Hours and Earnings:

Earnings for this pay period as well as year-to-date (YTD) earnings.

Taxes:

Federal withholding (for federal taxes), Medicare, FICA, State withholding (for state taxes).

Before-tax Deductions:

Vary per individual, but may include payments for medical and dental plans, retirement plans, and flexible spending accounts.

After-tax Deductions:

Amounts taken out of pay after taxes, such as for life insurance, United Way and union dues.

Employer-paid Benefits:

Contributions made on behalf of you by your employer. This is provided for your information and does not come out of your pay.

Totals:

Current and year-to-date information on earnings, taxes and deductions.

Net Pay Distribution:

Net pay and accounts to which pay has been directly deposited.

OF THOSE WHO HAVE THE OPTION,
what percentage of people CHOOSE TO RECEIVE
THEIR PAYCHECKS VIA
DIRECT DEPOSIT?

THAT'S CORRECT!

Three out of four working Americans who have direct deposit available use it.
And four out of five who use it are very satisfied with it.

For more information about direct deposit, click here.

Source: electronicpayments.org

NOT EXACTLY.

Three out of four working Americans who have direct deposit available use it.
And four out of five who use it are very satisfied with it.

For more information about direct deposit, click here.

Source: electronicpayments.org

Paycheck Checklist

  • Make sure your paycheck has all your personal details correct.
  • Save your paycheck and stub at year-end to check against the W-2 you receive in January from your employer.
  • Figure out your exemptions carefully, so your taxes are withheld accurately. If you have questions, you may want to check with your tax advisor.
  • If you earn money outside your job or have investment income, adjust your withholding to cover the tax on the extra income.
  • If you're self-employed or expect significant income above your paycheck, you should plan to make quarterly estimated tax payments.

WHAT'S THE NET NET?

The amount on your actual paycheck may be less than you expect. A number of factors go into this.

GROSS SALARY

When you receive your job offer, you are given a gross salary figure. That gross salary is then divided by the number of pay periods —weekly, biweekly or monthly.

NET SALARY

Ultimately, what you receive is your net salary — your gross salary less taxes, benefits and retirement contributions.

WHAT MAKES UP THE DIFFERENCE?

Click here to see
  • Payroll taxes—federal, state, local
  • Deductions for healthcare and other insurance
  • Flexible spending account contributions for healthcare and dependent care (if elected)
  • Retirement plan contributions (if elected)

WHAT IS FICA?

FICA stands for the Federal Insurance Contributions Act and funds Social Security and Medicare. The amount you pay to FICA depends on your income. Currently, the Social Security tax rate is 6.2% of gross salary with an annual maximum tax of $7,254. The Medicare tax rate is 1.45% of all income with no annual maximum. You may also have an additional 0.9% Medicare surtax if your salary is above $200,000 and you're single (or $250,000 for married, filing jointly).

SETTING UP YOUR ALLOWANCES

When you start a new job, you'll be required to complete an IRS Form W-4, which indicates the amount of federal income tax to withhold from your salary. The IRS provides an online Withholding Calculator that can help you determine your allowances more accurately.

For more information, speak with your tax advisor and your U.S. Trust team.

Speak to your U.S. Trust Team if you have any questions about your paycheck.