by RAY PETRUS

Getting your first paycheck from your new job can be exciting, but paychecks are often riddled with confusing terms and numbers that seem to deduct from your pay for no reason. Read on to learn how to read a paycheck so you can know exactly how much money is going into your pocket and why.

Company Information

The top of the paycheck will usually include information about the company, such as their name and address. You’ll also see the pay period, which refers to the period of time for which you are being paid. Pay periods are generally two weeks in length, with paydays staggered two weeks behind. For example, if you get paid on the 15th and the 30th of every month, you can expect to be paid on June 30th for the hours you worked from June 1st to June 15th. You will be paid on July 15th for the hours you worked from June 16th to June 30th, and so on.

Personal Information

Below or next to your company’s information, you will find a few lines regarding your personal information. This information might be related to your tax status or your position at the company. Besides your name, you might find your marital status, your number of tax exemptions, the last four digits of your social security number, or your employee ID.

Earnings

Now comes the fun part. The earnings section of your paycheck will detail how many hours you worked and how much you are being paid (before deductions) for those hours. This section will often be separated out into different lines representing different pay rates or unique pay categories. For example, you might see one line for regular hours worked, one line for overtime, one line for holiday pay, and one line for paid time off.

Deductions

This part isn’t so fun. (Except for the 401(k) contribution!) Here you will find a list of all the money being deducted from your paycheck for various reasons.

Income Tax

Firstly, you have your federal income tax. The money being withheld from your paycheck for federal income tax is actually an estimate and not an exact measurement, as you won’t know how much money you make this year until the year is actually over. (This is the reason why you receive a tax refund or have an amount due to the government when tax season rolls around and you find out the exact amount you owe in taxes for the previous year.) This amount is determined based on how much money you think you’ll make this year as well as any extra money you choose to have withheld.

If you work in a state that requires you to pay state income tax, you will have a withholding for that as well.

FICA Taxes

FICA stands for the Federal Insurance Contributions Act, a law that requires U.S. citizens to pay a portion of their paychecks into Social Security and Medicare. The idea is that employees will give a portion of their pay to these programs and then get to take advantage of them after they retire. The tax rate for Social Security is 6.2 percent of your paycheck, while the rate for Medicare is 1.45 percent. This makes your total FICA tax 7.65 percent of your paycheck. Your paycheck may have the two portions of your FICA tax payment separated out into different lines or all in one.

401(k) Contribution

If you choose to contribute to a 401(k), which is an employer-sponsored retirement plan, your contribution will be automatically deducted from your paycheck. While this portion is optional, it is extremely important (if your employer matches your contributions)!

Insurance Premiums

Some employers offer benefits packages that require you to pay full or partial premiums for insurance every month. If this is the case for your company, your premiums will be deducted from your paycheck.

Bottom Line

At the bottom of your paycheck, you will see a list of totals. One of these will be the net pay sections, which tells you the total amount going into your pocket for this pay period after deductions. You will also see a few YTD lines, which tell you your year-to-date amounts for hours worked, pay before deductions, deductions, and pay after deductions.