When you look into your pay stubs, there are two major categories of paycheck withholdings: taxes and deductions. Under taxes, you will mostly find these types of taxes withheld.
- Federal Income Taxes: The amount of federal income tax to withhold from the employee's paycheck depends on the filing status and the number of dependents specified on Form W-4. Employers withhold a certain amount every pay period. If employees are exempt they can claim exception.
- State and Local Taxes: Some states have withholding requirements and some don’t. So, based on the work location, your employer withholds a percentage of your pay towards these taxes.
- Social Security and Medicare: These are what are called FICA (Federal Insurance Contributions Act) taxes that are paid to the federal government to fund government income and health programs for the elderly. The current social security tax rate is 6.2% and Medicare is 1.45%.
The employer too pays a matching percentage amount to the government.
Now, let’s see the different deductions that are withheld from employee’s paycheck:
- Retirement Plans: All contributions made toward the 401(k) benefit plan will be reflected on the paystub.
- Wage Garnishments: If you're making any child support payments, then those payments will also be reflected under deductions.
- Health Benefit Payments: This is yet another common deduction that can be seen on a paystub.