Yahoo Finance Money Minute: What does everything on my paycheck mean?
If you, like many workers today, have your paycheck deposited electronically, it may have been a while since you actually took a minute to look at your pay stub. And if you have checked it out recently, did you really understand everything on it?
Here's a rundown of what all those numbers and abbreviations mean:
Gross pay. Gross pay can be kind of a letdown. It’s the biggest number on your check because it’s the money you earn before anything is taken out for things like taxes and insurance. Womp womp.
Net pay: Net pay is what you actually get to take home. It’s your gross pay, minus deductions. For example, if your gross pay is $2,000 and you paid $400 in taxes, benefits and other deductions, that would make your net pay $1,600.
YTD: You’ll see this abbreviation a lot on your pay stub. It just means year-to-date. So if you get your paycheck on March 1, your year-to-date earnings will reflect everything you’ve earned since Jan. 1.
Federal and state taxes: Your federal tax rate is based on your income and can vary depending on what exemptions you claim on your W-4 (that’s the form you fill out before starting a new job that tells your employer how much to withhold from your paycheck to cover your taxes). If you screw up your W-4, that could mean you’re paying too little or too much in taxes. You should review your W-4 every year to make sure it's accurate. You may have been unemployed for a while, gotten married, had a baby or gotten a second job, all of which would likely result in changes to your tax withholdings. If you want to see what impact changing your payroll deductions can have, use a calculator like this one from Bankrate or this one straight from the IRS itself.
[Get the Latest Market Data and News with the Yahoo Finance App]
State tax: There’s a reason so many rich people live in Florida. There's no state income tax! Sadly, most states do charge individual income taxes. State taxes are used to fund public services like schools, Medicaid and state police.
FICA tax: FICA stands for Federal Insurance Contributions Act, which is actually two taxes combined: Social Security and Medicare. These are taxes both employers and employees pay to fund benefits for retirees and disabled workers. To make things easy, I’ll break them down.
1.45% of each paycheck goes to Medicare and another 6.2% goes to Social Security.
Medicare provides health care benefits for Americans 65 and older.
Based on how much you earn and contribute to Social Security over your career, you’ll get a monthly Social Security benefit when you retire. People are pretty touchy about this program because many folks are concerned the Social Security trust fund is going to run out of money and won’t cover younger generations when they retire.
Pre-tax deductions
These are deductions for things you pay from your pre-tax earnings, like contributions to your 401(k) plan, health savings account, and commuter benefits.
After-tax deductions
This is money taken out from your pay after taxes are withdrawn. They include stuff like Roth 401(k) savings and life insurance.
Check out more from Mandi:
Mika Brzezinski: The biggest mistake women make negotiating
