What’s with the taxes out of a paycheck?
You start a new job and eagerly await your first paycheck. Is it less than you expected? Taxes can put a large dent in your paycheck. If you understand what these taxes are and why they are taken out of the paycheck, you can budget more effectively.
Gross Pay – This is your base pay. It is your hourly wage times the hours you worked.
Example: You earn $10 per hour and you worked 40 hours. Your gross pay is $400
Net Pay – This is your gross pay minus taxes and anything else your employer takes out of your paycheck.
Example: Your gross pay is $400 and you had $70 in taxes taken out. Your net pay is $330.
FICA Taxes - These payroll taxes support Social Security and Medicare benefits. Each employee must pay in a portion of their paycheck.
Federal Income Tax – This payroll tax is paid to the Federal Government. The amount you owe depends on if you are married or not and how many exemptions you claimed when you filled out your W4 Form. If you overpay during the year, you can receive a refund when you file your Income Tax Return.
State Income Tax – If your tax collects income tax, this amount will also be taken out of your paycheck. You can also receive a State Income Tax refund if you overpay throughout the year, but you have to file a tax return to get it.
If you think the taxes out of your paycheck are too high, check with your employer. Make sure you marked the correct number of exemptions on Form W4.
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