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Where does the money go?

If you’re earning a paycheck, you’ll quickly discover that the salary you’ve agreed to isn’t what you bring home. Taxes, benefits and other deductions are all taken out of your check before you even see it.

Understanding your paycheck

Attached to your paycheck is a paystub. Your paystub contains a breakdown of all the amounts that come out of your pay, resulting in the ultimate amount of your check.


Typical elements of a paystub include:

  1. Pay information: date of pay period, check number
  2. Employee information: your name, address, company department
  3. Tax data: Marital status, allowances/exemptions and tax withholding information (from the Form W-4 you completed)
  4. Hours and earnings: Earnings for this pay period as well as year-to-date (YTD) earnings
  5. Taxes: Federal withholding (for federal taxes), Medicare, FICA, State withholding (for state taxes)
  6. Before-tax deductions: Vary per individual, but may include payments for medical and dental plans, retirement plans, and flexible spending accounts
  7. After-tax deductions: Vary per individual, but may include life insurance or union dues
  8. Employer-paid benefits: Contributions made on behalf of you by your employer including healthcare, dental or life insurance (Info is provided for your information and does not come out of your pay)
  9. Total payments: Current and year-to-date total payments on earnings, taxes and deductions
  10. Net pay distribution: Net pay and accounts to which pay has been directly deposited


Paycheck checklist

  • Make sure your personal details are correct on your check.
  • Save your paystubs to check against the W-2 you receive in January from your employer for accuracy.
  • Figure out your exemptions carefully, so your taxes are withheld accurately. (Questions? 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

Your gross salary is the salary amount provided to you in your job offer. That amount 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 and/or dependent care contributions (if elected).


Although it’s convenient to have your paycheck direct deposited into your bank account, remember to still review your paystub on a regular basis, and confirm that it’s accurate.

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.  


What is Social Security?

  • Social Security is a federal insurance program that provides benefits to retired people and those who are unemployed or disabled
  • Currently, the Social Security tax rate is 6.2% of gross salary with an annual maximum tax of $8,618. In 2022, while the tax rate will remain the same, the annual maximum tax will increase to $9,114.


What is Medicare?

  • Medicare is the federal health insurance program for:
    • People who are 65 years or older
    • Younger people with certain disabilities
  • 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 or $125,000 for married, filing separately).

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.

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