Skip to main content

Search

How Do Taxes Affect Your Paycheck?

Have you ever looked at your paycheck or end-of-year bonus and been surprised by the taxes that were deducted? Well, many others have been in the same situation. Taxes are a welcome to the workforce notification. Let's see the distinction between the money you earn and what you take home. 

Income graph with question mark

Gross Pay

Your gross pay consists of the total amount of money you earned for a particular pay period before deducting any taxes. So, if you make $60,000  a year and receive your pay semi-monthly, your gross pay would be $2,500. Your gross income may show as salary or regular earnings on your pay stub. Your gross pay can differ if you are paid hourly and work fluctuating hours. 

See: Where Did My Money Go? Ad 

Federal Income Tax

Federal income tax is a mandatory deduction and will vary based on the completion of your W-4. The IRS has a tax withholding estimator that can guide you in estimating your withholding. If you withhold too little, you may end up paying back the government during tax time. If you withhold too much from your gross pay, you could receive a tax refund. Having a large tax refund is rarely beneficial, so it's essential to estimate carefully.

State Income Tax

Not all states require taxes to be deducted from your gross pay. For example, Alaska, Florida, and Texas are three of seven states with no state payroll tax requirements. States that do have payroll taxes have specific state or local tax forms. Taxes also will vary by state and are deducted from your gross pay. 

Social Security Tax

The Social Security tax is used to supplement an individual's retirement. This tax is deducted while working and can be drawn as early as 62 years old. The Social Security tax is mandatory, and your employer also must contribute an equal amount on your behalf. You can multiply your gross wages by 6.2 percent to calculate your current contribution. You can see your total social security contributions by registering with the Social Security Administration

Medicare Tax

Medicare Tax is similar to social security tax since you cannot use it until you meet specific age requirements. Medicare is a federal health insurance benefit for individuals over 65 years old. The Medicare tax is a mandatory contribution deducted from your gross pay. Like the Social Security tax, your employer must also match your contribution. The current Medicare tax rate is 1.45% for you and your employer. 

Net Pay

There you have it! You've received your net take-home pay after applicable taxes. Child support, medical, retirement, or other deductions could reduce your net pay further. However, these are the legitimate reasons you may see a discrepancy in your gross and net pay. 

Comments

Popular Posts

9 Ways Employers Can Celebrate Juneteenth

What's one way a company can recognize and celebrate Juneteenth? To help you find ways to celebrate Juneteenth as a company, we asked business leaders this question for their best insights. From supporting Black-owned businesses to hosting an African-American guest speaker, there are several ideas that may help you bring your employees together to recognize and celebrate Juneteenth properly. Here are nine ways employers can celebrate Juneteenth and make a financial and social impact within your community and with your employees: Launch a Juneteenth Team-Building Event Invite an African American Guest Speaker Line Up Activities To Help Employees Reflect and Give Support Black-Owned Businesses Go on Museum Tours Celebrate Through Social Media Choose a Way To Actually Celebrate Together Play Trivia Games Throw Virtual Parties Launch a Juneteenth Team-Building Event A company can commemorate Juneteenth by launching a team-building event, where everyone is tasked with researching and pr

Top 4 Ways To Budget For The Holidays

Holiday gift-giving is a time of joy, and the expression you see on someone's face when they open that perfect gift can confirm that you found the perfect gift. Gisele Bundchen stated that "Christmas and the holidays are the season of giving. It's a time when people are kinder and open-hearted." When searching for the perfect gift(s), it's also essential to keep your budget in mind. Here are tips to keep your holiday budget on the right track. Photo by  Jakob Owens  on  Unsplash Budgeting for the Holidays Budgeting for the holidays begins by estimating what you plan to spend for gifts, travel, and food. If you have children, budgeting for presents keeps your budget on track by designating what you will spend on each child. If you have a significant other, agreeing on gift purchase limits for each other can help ensure that one partner doesn't overspend. You can also pre-plan your travel by budgeting at least six months in advance and establishing a limit for f

11 Professionals Share Tips on Asking For A Raise

What's one thing to consider when asking for a raise?  To help you with preparing to ask for a raise, we asked HR managers and CEOs this question for their best insights. From communicating challenges you overcame to presenting tangible numbers and results, there are several tips that may help you ask for a raise in the future. Here are eleven things to consider when asking for a raise: Communicate Challenges You Overcame Consider Asking For Perks Prepare for the Worst Ask for More Than You'd Settle For Make Sure Your Industry is in Good Shape Expect a Waiting Period Determine Why Your Boss Should Give You a Raise Come Into The Meeting Well-Prepared Plan a Year Ahead Consider Your Timing  Present Tangible Numbers and Results Communicate Challenges You Overcame Your boss and company must see your real growth. Therefore, instead of raving about your achievements, narrate the stories of how you encountered a challenge, made a superior result, and solved an issue. When we're ne