You’re fresh out of college and hungry (maybe even literally) for your first paycheck. Once it finally arrives, however, you’ll see some of the money is withheld. Don’t panic! These are called deductions, or money withheld by your employer for things like taxes and insurance. Understanding where your deductions are going will put you at ease when you get those first few paychecks.
- Federal Insurance Contributions Act (FICA) tax is a federal payroll (or employment)tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, disabled people and children of deceased workers. Social Security taxes may not apply to everyone working for a public employer.
- State and federal income taxes are withheld from each paycheck. Federal income taxes withheld are generally based on income, marital status and number of allowances you claim on your W-4 form. State taxes are withheld based on your state’s withholding formula. You should consult with a tax professional to learn more about how to best manage your taxes.
- State retirement system contribution is the percentage of your salary deducted for state retirement contributions each pay period. In some systems, retirement benefits aren’t based on the amounts contributed. However, generally speaking, this is the money you’ll see again in retirement.
- Union or association dues may be payroll deducted if allowed by your employer. Examples of these include the National Education Association and the American Federation of Teachers, organizations that represent and support educators.
- Insurance premiums for employer-provided benefits can also be deducted. These deductions are for things such as medical, dental or vision insurance. For more information, contact your employee benefits area.
- Other deductions can also be made, such as 403(b) contributions, which is a type of supplemental retirement plan that might be available to you. If allowed by your employer, individual insurance premiums may be payroll-deducted, providing you with a convenient way to pay for coverage, such as life or auto insurance. Other deductions could include charitable donations.
Now that you know a little bit more about what appears on your paycheck, check out these four steps to make your money work for you.
AM-C04308 (June 18)