Some employers may also offer optional alternatives to paychecks, such as paycards , which can be advantageous to unbanked workers. Unlike withholding certificates and other employment documents, paychecks are pretty easy to decipher. Reading them is simply a matter of making sure the payment information is correct. Most states require employees to receive pay stubs. Actual pay stubs vary based on individual circumstances and the state. Some have specific requirements about the information that has to be included on the pay statement and when it must be delivered to employees.
When reviewing their first paycheck, those who are new to the workforce may wonder why their take home pay is less than their gross pay.
The reason is because of taxes, withholdings and deductions such as these:. When completing this form, employees typically need to provide their filing status and note if they are claiming any dependents, work multiple jobs or have a spouse who also works for married filing jointly purposes , or have any other necessary adjustments.
FICA is a two-part tax. Both employees and employers pay 1. Those with high income may also be subject to Additional Medicare tax, which is 0. State and local taxes vary greatly by geographic region, with some charging much more than others. Examples include:. Businesses that offer health insurance, dental insurance, retirement savings plans and other benefits often share the cost with their employees and withhold it from their pay. Depending on the type of benefit and the regulations that apply to it, the deduction may be pretax or post-tax.
To be exempt, you must meet both of the following criteria:. When it comes to tax withholding, employees face a trade-off between bigger paychecks and a smaller tax bill. It's important to note that while past versions of the W-4 allowed you to claim allowances, the current version doesn't. Instead, filers are required to enter annual dollar amounts for things such as total annual taxable wages, non-wage income and itemized and other deductions.
The new version also includes a five-step process for indicating additional income, entering dollar amounts, claiming dependents and entering personal information. While those hired before Jan. One way to manage your tax bill is by adjusting your withholdings. The downside to maximizing each paycheck is that you might end up with a bigger tax bill if, come April, you haven't had enough withheld to cover your tax liability for the year.
That would mean that instead of getting a tax refund, you would owe money. If the idea of a big one-off bill from the IRS scares you, then you can err on the side of caution and adjust your withholding.
If you opt for less withholding you could use the extra money from your paychecks throughout the year and actually make money on it, such as through investing or putting it in a high-interest savings account. You could also use that extra money to make extra payments on loans or other debt.
When you fill out your W-4, there are worksheets that will walk you through withholdings based on your marital status, the number of children you have, the number of jobs you have, your filing status, whether someone else claims you as your dependent, whether you plan to itemize your tax deductions and whether you plan to claim certain tax credits. You can also fine-tune your tax withholding by requesting a certain dollar amount of additional withholding from each paycheck on your W A financial advisor can help you understand how taxes fit into your overall financial goals.
Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.
In addition to income tax withholding, the other main federal component of your paycheck withholding is for FICA taxes. FICA contributions are shared between the employee and the employer. However, the 6. It will still have Medicare taxes withheld, though.
There is no income limit on Medicare taxes. If you make more than a certain amount, you'll be on the hook for an extra 0. Local taxes are imposed at the city level in Ohio, while other taxes are imposed at the county level, such as in Indiana. Still other taxes are set by school districts. This is the case in Iowa. There are a number of online paycheck calculators that can help you estimate your taxes and resulting net pay.
Your best option is probably to use the IRS estimator for federal taxes, then look for a similar service on your state's website. There are many ways to reduce your income taxes through deductions and credits. Talk to your financial advisor or tax accountant at the beginning of the year to determine a strategy for maximizing your deductions for the year. Internal Revenue Service.
Accessed Oct. Social Security Administration. Pennsylvania Department of Revenue. Urban Institute. Ohio Department of Taxation. Indiana Department of Revenue. Iowa Department of Revenue. Iowa Policy Project. Actively scan device characteristics for identification.
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