Learn something new every day
More Info... by email
The most common kinds of paycheck deductions are for taxes. In most cases, people in the United States will have four kinds of taxes deducted from their paychecks: FICA, federal income tax, state income tax, and local tax. Taxes vary from state to state and taxation systems outside of the United States differ in the ways that they levy taxes. FICA is short for "Federal Insurance Contributions Act" and serves to cluster taxes for Medicare and Social Security.
Federal income taxes range between about 10 percent and 35 percent of one's income. The percentage of one's income that is deducted for federal income taxes varies depending on one's income. People making the least amount of income have the smallest paycheck deductions for federal taxes while people making the largest amount have the largest paycheck deductions for federal income.
State income taxes vary from state to state. These types of paycheck deductions may be based on one's federal income taxes or may be calculated according to another rubric. Local taxes are only levied in some areas. They vary depending on one's city of residence. There are a number of useful online calculators that can be used to figure out how much money one can expect to have deducted from their paychecks.
In addition to all of the paycheck deductions for taxes, there are also paycheck deductions that are optional. These kinds of deductions almost always siphon part of one's paycheck into an investment such as a 401(k) or a 401(a). In some cases, an employee can agree to paycheck deductions in order to receive a certain level of health benefits that goes above and beyond the standard package offered by the company.
When people discuss "take home pay," they are referring to the amount of money that they have left over after all of their paycheck deductions have been assessed. This is the amount of money that people have to pay for the basic necessities such as food, clothing, and shelter as well as any additional charges. Some people who work on a freelance basis do not have deductions taken out of their paycheck. This is because they do not receive a standard wage on a regular basis but work on a contractual or assignment basis. In this case, instead of paying paycheck deductions throughout the year, these people have to pay any taxes that they owe on an annual or quarterly basis depending on the rules that they have to adhere to and their financial plan.