What to expect when you’re expecting (a paycheck)
When you get your first paycheck, it might not be as much as you thought it would be. That’s because along with the money you’ve earned, your paycheck has several deductions, like taxes and salary deferrals. Here’s a list of some of the terms you might see on your paycheck and what they mean:
- Gross pay: This is the amount of money you earn before taxes and deductions are taken out. If you are paid an hourly wage, it’s the number of hours you’ve worked multiplied by how much money you make per hour.
- Net pay: This is the amount of money left over after all deductions have been made, i.e. the amount of money you actually take home from your paycheck.
- Federal tax: This tax is the money the federal government takes from your paycheck. This amount varies by income, and can check how much federal income tax is withheld at http://www.irs.gov/Individuals/IRS-Withholding-Calculator
- State tax: Your state government will take a portion of your paycheck. The amount varies by state. You can check your state’s rate at http://www.retirementliving.com/taxes-by-state
- Local tax: Usually, you won’t have to pay a local tax unless you’re living in a large city. The local tax is the amount deducted from your paycheck to go to local government.
- Medicare: Both you and your employer pay 1.45% of your gross income to the Medicare program.
- Social Security: This is another tax paid by both you and your employer, but the social security tax is 6.25% of your gross pay and is paid into the social security program.
- Salary deferral amount: Though it’s unlikely that you would have any salary deferrals in an hourly job, you should know that salary deferral covers the amount that you pay into your 401(k) or money that goes to your health insurance plan.
- Pay period: The pay period is the term for how frequently you get your paycheck. You might be paid weekly (52 checks per year), every other week (26 checks per year), twice a month (24 checks per year), monthly (12 checks per year), or annually (one check per year).
Many websites have paycheck calculators where you can enter your information to get a more accurate idea of how much net pay you will receive with your next paycheck. It’s much easier to budget when you know how much money to expect!
Payroll deduction calculator links:
Originally published at mumoneymatters.tumblr.com.