The world’s greatest magician is the dollar; its disappearing act makes it rival to none. And it can be especially tricky to figure out where it went when payday comes around. Just take one look at your paystub, though, and you’ll get a pretty good idea where a chunk of it’s going. Let’s break down what happens to your money between gross pay and net pay.
Gross Pay Versus Net Pay
At the top of a typical paystub you will see a section called Earnings, and within that it shows your Gross Pay. Below Earnings is the Deductions section, of which at the bottom you will see your Net Pay. Depending on your paystub, you may see a line item that states what your federal taxable wages are. Here’s what each mean:
- Gross Pay: This dollar value is what you earn from your employer every pay period before any deductions are taken out.
- Net Pay: This dollar value is the actual amount you keep each pay period after deductions are taken out.
- Federal Taxable Wages: The dollar amount that is taxable, minus deductions to certain things that aren’t taxed like healthcare for example.
What Are All the Deductions?
There’s a lot going on in the deductions portion of your paycheck, but the biggest chunk typically goes to your taxes, both federal and state. How much you pay depends on how much you make and in which state you live. Sometimes, you will also have taxes taken out by your city. In theory, the more you make, the more you will pay in taxes.
The individual tax brackets are determined by the federal and state government and are based on income groups.
State taxes are generally based on how much you make a year and can vary greatly depending on where you live. For example, Florida has no income tax, whereas California has an income tax rate higher than 13 percent. Combined with your federal income tax, you could be paying as little as 10 percent in taxes or as much as 50 percent in income taxes – but the average is said to be about 14 percent. These taxes are used to pay for public services at both the state and federal level, as well as roads, police, firefighters, and more.
Other “Statutory” Taxes
Within the Statutory section of the Deductions are all the different required taxes, including federal, state, and local taxes. But there are also a couple of other deductions to look for:
- Social Security Tax: Social security is a federal program that offers financial assistance to those who have retired, workers who have become disabled, or to families who have had a spouse or parent die. You pay into it throughout your lifetime and are designated a certain amount when any of these three qualifiers apply to you.
- Medicare Tax: Medicare is a program that helps to fund older Americans’ healthcare costs. It’s a benefit to everyone, though, as it helps to keep the costs of care down for each of us.
Besides the statutory deductions required by federal and state governments, you may see some additional money taken out of your paycheck. Here are a few of the more common deductions:
- Union dues if you are a part of a local union
- Life insurance bought through your employer
- Long Term Disability or Short Term Disability bought through your employer
- 401(k) or other retirement deductions
- Withholdings for charitable contributions or child support
As mentioned previously, not all of your income is taxable. If you contribute to a 401(k) retirement plan or pay towards healthcare coverage, that amount is removed from your gross pay as non-taxable income. For a more robust list of potential deductions, as well as explanations of other common abbreviations seen on your stub, check out this Sample Paycheck Stub article.
Given all the deductions out of your paycheck, it’s no wonder it can sometimes feel as if the dollars you earn perform a disappearing act. If your net pay isn’t netting enough to get you through to the next paycheck, LendNation is here to help with a title loan, installment loan or payday loan – apply in-store or online. Get your application started now!