What Are The Factors Affecting Your Paycheck?

2016_0419-TakeHomePayIt’s just a hunch but I’m willing to bet that a lot of you earning a paycheck don’t fully understand all the deductions that are taken from your gross amount. First of all, these deductions are actually called taxes. That’s right, you’re now in that exclusive club that helps run our country as smooth as it can.

Depending on what state you live in determines how much in taxes you pay. The basic taxes we all pay are Federal Income Tax, Social Security and Medicare. Federal is just how it sounds. It pays for what’s needed throughout our country including National Defense. Social Security is there to assist you financial when you reach retirement age. Trust me, you’re going to need that. As you will with Medicare, that’s also for retirement age to assist with basic health care.

All states are not created equal when it comes to taxes. A number of states have a State Tax and could also have a City Tax. There lots of other taxes out there but I think you get the idea. Death and taxes…I’ll take taxes!

Understanding Your Paycheck Deductions

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Getting your first paycheck is an exciting thing. Then you look at the actual amount of the check and you think there must have been a mistake! It’s because they take out taxes and employee benefits from you pay. You should take the time to understand what they deduct from your paycheck, and why.

High school students usually first become aware that the money you make per hour, multiplied times the hours they worked each week, did not add up to the amount they actually received in their check for the pay period. Gross pay is the amount you are paid, before taxes are taken out, Net pay is the actual amount of the check, with all of the taxes and benefits deducted.

Here are the different items they deduct from an average paycheck:

Federal Tax – also known as income tax. it can range from 15 to 39.6% of the total. The more you make, the more you pay. Here’s a basic table of income tax rates for 2016:


State Tax – this is the State Income tax paid depending on which state you live in. Currently seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

FICA – This is the social security tax. You pay 6.2% of your income to FICA. In addition, your employer pays and additional 6.2% for you. It provides you with a guaranteed retirement benefit when you are in your 60’s.

MEDI – This is for Medicare. You pay 1.45% of your income to Medicare. Your employer also pays an additional 1.45% for you.  It provides you with health care benefits when you are in your 60’s.

OTHER – Other items that can be deducted from your paycheck are for Life Insurance, Health Insurance, Retirement Plans, Flexible Spending Account Deduction (which is a health savings plan) and Employee Stock Plans. There may be other items deducted as well which are usually part of an employee benefits plan.

BTW, besides Financial Literacy Month, April is also Tax Month, with your personal tax returns due on April 15th. Did you file your return yet?


A Rude Awakening on Pay for The Class of 2015

From HuffPost – Leaving college for the “real world” can be a jarring experience for any new graduate. And if a new survey is any indication, a particularly unpleasant surprise awaits the bright-eyed, fresh-faced class of 2015 when they get those first paychecks.

What new graduates expect to earn in their first job is pretty different from what grads of 2014 and 2013 have actually been making, according to a survey released Tuesday by the consulting firm Accenture.

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Social Security 101 – 10 Things You Need to Know

OK, your young, why do you need to think about Social Security?

Because it’s money deducted from your paycheck, o don’t you want to know what does for you? Contrary to news reports, Social Security is not going broke. Being knowledgable about what Social Security is just basic financial literacy!

From CNBC – Social Security Insurance was established in 1935 as a financial safety net for older Americans. Eight decades later, all Americans pay into the system, with Social Security the largest source of income for citizens age 65 and older.

The following 10 points are based on best practices recommended by the U.S. Social Security Administration of policy website.

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