Payment DeductionsPersonal Finance
Your paycheck depends, rather obviously, on your payment structure. It generally meets one of the following: hourly wages worked multiplied by your hourly wage, annual salary plus bonuses for performance, or commission multiplied by the total value of products sold. Anyone who works a typical salary or hourly position will notice that their received paychecks are lower than their employer’s actual numbers. So what happens to the rest of your paycheck?
In the United States, your paycheck gets deducted several times by government programs before you receive it. It will be reduced by taxes at the Federal and state level. It will also be reduced by other factors such as alimony, child support, and wage garnishments. Your check begins by having roughly a fourth of it removed by the federal government. The amount that is held from your paycheck is determined by your W-4 form. Your state may also remove a specific percentage for holding purposes. You should check with your state to see how much they withhold from your income bracket or if they even withhold income tax at all.
Pay-in Government Programs
It’ll also be reduced by Social Security, Medicare, and other taxes. As of 2013, Social security has an additional tax of 6.2% on income under $113,700. Medicare has a tax rate of 1.45% on all income. If you are self-employed, the social security tax rate is 12.4% on income under $113,700, and the Medicare rate is 2.9% on all income. The difference between employed and self-employed tax rates on social security and Medicare is due to matching. If you are employed by a company, your employer matches your contribution taxes and your check will be deducted by 7.65%. If you are self-employed, you must pay the full 15.3% yourself.
Work Related Deductions
Your paycheck is reduced by your employer for benefits being provided through the workplace. Your employer will deduct money from your paycheck if you are provided health, dental, life, or disability insurance. The amount deducted depends on the total cost of the insurance itself, but it can range from a few hundred to a few thousand dollars.
If you have an employer-sponsored retirement program withholding will occur. There are many retirement programs operated by employers that will automatically decrease your income. These plans are automatically funded if tied to your paycheck, and paychecks will be reduced.
Other preferred deductions can occur here as well. If you have contributions that are automatically given to other organizations, they are deducted. If you have specified a contribution due to a union, a charity, a religious sect, or any other organization to your employer they will be automatically removed.
After withholdings and deductions, you will receive your actual paycheck. Obviously, it will be lower than expected. You should factor your deductions into your budget to avoid running out of money after paying your rent and bills. If you don’t you may be forced to rely on credit cards or other debt solutions to make it until your next paycheck.
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