The hardest thing about being hired on in a new job is understanding how you’re getting paid.  I know from experience that it can be confusing, even frustrating.  Sometimes the employer forgets to explain everything, including how much you are going to make.  You expect one amount, and you get your check only to see 50 percent of it gone.

The first thing you do is go running to the employer yelling “My check is wrong!”. Even after your payroll or human resource person takes the time to explain, you still don’t understand.

After thirty-years of doing payroll, I am still amazed at how much payroll has changed. We are in the new techy world, that should have made our lives easier, yet they are not. In-fact they are harder than it was before.  Payroll is the same way, it should be easier, but it becomes much more complicated as time goes by.

Here are some explanations that might help you better understand your paycheck.

Some of the items listed on your paystub may be employer deductions. These are amounts that the employer must pay on your behalf. These are the following taxes:

SUTA – State unemployment tax (varies per state – and their designated contribution rate.

FUTA – Federal unemployment tax – tax rate for FUTA is 6.2%, and based on the first $7,000 paid in wages to each employee during the year.

FICA (also known as Social Security) Employers are required to pay half of the amount of the FICA. Employees pay half and employers pay the other half. Self- employed individuals must pay the whole amount.  The percentage for each employer and employee is 6.2% of your gross wages up to $127,200 less pre-tax deductions (usually health insurance, dental, etc.).

Medicare – Employers are required to pay half of the amount of the Medicare. Employees pay half and employers pay the other half. Self- employed individuals must pay the whole amount.  The percentage for each employer and employee is 1.45% of your gross wages (no cap) less pre-tax deductions (usually health insurance, dental, etc.)

The additional taxes are Federal Income Tax, State Income, and local taxes.  These are taxes thee employee pays.

Federal Income Tax – This tax is calculated from the W-4 withholding form you fill out when you are hired.  The employer withholds this from your paycheck and submits the money directly to IRS. Employers do not have to contribute anything for this tax.

To figure out federal taxes, employers should have employees fill out a mandatory IRS W-4 form. This form is used to figure out federal taxes, and state and city taxes where applicable. To calculate total federal tax, use the employee’s W-4, Employer’s Tax Guide and Supplemental Employer’s Tax Guide.

State Income Tax – This tax is calculated from the State W-4 withholding form you fill out when you are hired.  The employer withholds this from your paycheck and submits the money directly to that state. Employers do not have to contribute anything for this tax.

Depending on the state where a business is located, employers and employees may be required to pay state income tax. Taxes vary by state.

City and County Income Tax – These are calculated according to the rules of the area you live or work in. Employer does not pay these taxes.

Though there aren’t many cities or counties with an income tax, a few, like New York City, do have this tax. Check with the local government to see if there is an applicable local tax.

Some employers have a cafeteria plan. This is a written plan that the employer elects to save them and you tax dollars.  This allows certain deductions to be calculated before taxes.

  • Accident and health benefits (but not Archer medical savings accounts or long-term care insurance)
  • Dental
  • Adoption assistance
  • Dependent care assistance
  • Group-term life insurance coverage
  • Health savings accounts, including distributions to pay long-term care services

Here is our sample paycheck – I am using Illinois as the state

Employee – Carolyn Smith worked 40 hours a week.  She is married and gets paid bi-weekly (every two-weeks). She claims married-zero for withholding.

Her Gross Earnings before any deductions is $800.00 for two weeks.

Employee                                                                                                       Employer

1

Gross Pay                             $800.00                                                                     FUTA  (Amount depends on Employer Rate)

Federal                                     38.82                                                                     SUTA  (Amount depends on Employer Rate)

FICA                                          44.69                                                                     FICA                        44.69

Medicare                                   10.45                                                                     Medicare                  10.45

Illinois                                       27.03

Child Support                           200.00       (After tax)

Health Insurance                       55.28       (Pre-tax)

Dental Deduction                        23.85       (Pre-tax)

Uniforms                                       2.00       (After tax)

Life Insurance                               2.85       (After tax)

Net Pay                                  $ 395.03

To calculate your Federal & State – take 800.00 less pre-tax deductions =$720.87

If you wanted to look up your own federal tax to make sure your paycheck is being calculated, you would go to www.irs.gov and download publication 15. Search for your marital status and pay frequency and search the table for your tax.

For State withholding, you would have to go to the website for your state and download the withholding table and do your calculation.

I hope this helps you understand better on payroll taxes and your paycheck.