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It’s finally payday. You open the envelope to your paycheck, scroll through the numbers calculated by the software your company uses to create pay stubs and stumble upon your deductions…and then you get depressed.
Those deductions can be depressing, can’t they? Seeing how much money that you worked for that you’re not getting. It’s rough.
Deductions can also be frustrating and confusing. You may find yourself asking why you’re not receiving this money.
That’s why we put together this list of the top five things you need to know about paycheck deductions.
What Are The Types Of Deductions?
Depending on what kind of paystub you get, you may see a complete list of all the things taken out of your paycheck. It probably looks something like this:
- Social Security Tax
- Federal Tax
- State Tax (This includes the state you live in and where you work if they are different)
- Local Tax
- Retirement (such as a 401(k))
- Life Insurance
- Disability Insurance
- Any other benefits your employer provides
What Do My Insurance Paycheck Deductions Mean?
Any health insurance deductions are completely optional for you, the employee. If your employer offers insurance benefits, you are under no obligation to accept them. If you do though, they will be taken out of your paycheck.
What About the Other Deductions?
Your 401(k) contribution may or may not be mandatory. Some companies allow you to borrow money off of your 401(k), but you are then of course required to pay back what you borrowed. Otherwise, the money taken out of your paycheck will be accessible to you upon retirement.
As a citizen of the United States, you must pay federal income tax in addition to Social Security and Medicare. Everyone in the US pays them. You are also required to pay the taxes for your state and the state of your place of work if they are different. Your city likely has local taxes as well.
You can elect to not have these payments deducted from your paycheck. You will then need to pay them directly during tax season.
Why You Should Track Your Deductions
You are responsible for knowing how much is being deducted from your paycheck. Any errors or mistakes that go unnoticed are on you. This is why it is crucial to stay on top of this information.
Tracking your deductions is also just a good practice that will help you in creating your budget. The more you know about how much you are getting paid (or not getting paid), the better.
Hopefully, this list helped you to be a little less confused about your paycheck deductions. Now that you know where that money is going and why it’s going there, you can breathe a little easier when you see that number on your pay stub.
Money can be confusing, but there are several interesting facets to it. If you want to read more about finance-related topics, check out our business page!