The Tax Bite

Your first paycheck may not seem as large as you expected. That’s because the total equals your net pay, or take-home pay. This is the total amount earned, known as gross pay, minus various taxes and deductions.

Examine your paycheck stub and you’ll find that the largest amounts of money subtracted from your gross pay went to federal and state income taxes. You also pay for Social Security and Medicare taxes.

Federal and state income taxes
Federal tax is often the largest deduction from a paycheck and in most states, state income tax is also collected. The total amount withheld will be credited on both federal and state income tax returns. Federal and state taxes help pay for the military, roads, schools, police, fire departments and much more.

Social Security and Medicare taxes
This might be listed as FICA tax on your pay stub, which means Federal Insurance Contributions Act. This tax equals about 7.65 percent of your income and pays for one-half of your Social Security and Medicare tax. Your employer pays the other half. Self-employed people must pay the full 15.3% themselves.