With two of my sons working this summer and bringing home paychecks, I’m getting more and more questions from them about paycheck deductions.
Both of them are working part-time. Although their paychecks aren’t huge—typically $100-300—they still had to process the reality of receiving smaller paychecks than they’d expected. Not surprisingly, their first question was: “Is this just my paycheck, or do you have these deductions too?”
Sorry, guys; Mom and Dad have to deal with deductions, too. It’s just the reality of employment. But not all payment deductions are the same – and some, I explained to them, are even for your benefit.
What Are Paycheck Deductions?
Paycheck deductions are the various dollar amounts withheld from your gross income each pay period, resulting in reduced net pay. The more deductions applied, the smaller your take-home paycheck.
Paycheck deductions basically come in two forms:
- Involuntary deductions, which are required by law
- Voluntary deductions, which you can set and which let you contribute towards certain benefits.
Read More: “How I Taught My Kids About Compounding”
Common Involuntary Deductions
There are some common involuntary deductions most people will find on their paychecks, including:
- Federal Income Tax: Federal income taxes withholdings are applied to all paychecks based on how you complete your W4 Form. How much is withheld depends on many factors: how much you make, whether you’re single or married, if you have dependents, and so on. and how many “allowances” you claim. Given that, expect it to change over time. (The IRS has a handy online tax withholding calculator you can use to estimate how much will be deducted.)
- State Income Tax: Like federal income tax, the amount of state taxes withheld is based on how much you make. Unlike federal income tax, however, you may not always see this deduction on your paycheck. That’s because rates can vary significantly…
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