Dissecting Your Paycheck

paycheck taxesSo you made it out into the real world and received your first paycheck. Wait a minute…Where did it all go? You were expecting X amount of dollars, but probably received a lot less.

It amazes me how little the average person really understands about the money that comes out of their paycheck for taxes. You probably appreciate far less how much in taxes your employer pays on your behalf. Most of this was a pretty big mystery to me until I went to work for a small CPA firm and started preparing payroll tax returns. I probably now know more than I ever wanted to about the subject, but I sometimes wonder why this is not required as part of our basic education before entering the workforce.

...

[Continue Reading at SavingAdvice.com]

This entry was posted in Personal Finance, Taxes, Work. Bookmark the permalink.

23 Responses to Dissecting Your Paycheck

  1. davis says:

    It’s amazing how much goes out for taxes of one kind or another. I bet very few people look at their paycheck closely.

  2. bluprint says:

    One point, for the self-employed, social security and medicare are derived from .9235 (income x .9235) of income instead of the entire amount. So there is a small amount of mitigation to the fact that self-employed pay the entire 15.3%

  3. vsjhoc says:

    Thank you, this is very helpful. I have noticed that employers encourage you to sign up for 401(k)plans, flexible savings plans, and other pre-tax deductions. Is this (partly) because it would decrease the amount of social security and medicate taxes they have to pay?

  4. Teri Newton says:

    Bluprint – that is true. The self-employed also get to subtract 1/2 of the self-employment tax from their taxable income, when deriving income tax. Essentially the “match” part is treated as a business expense.

    They also get a lot of nifty tax deductions so I don’t feel too sorry for them. ;) But if you are only making a few thousand a year, the self-employment tax can be pretty hefty. & you are deriving little in social security benefits in return.

  5. Teri Newton says:

    Vsjhoc – hmmmm. I honestly don’t think most employers understand the taxes well enough to realize this – though maybe for bigger corporations – this could be true. I mostly work with small businesses and they push all of these things for 2 reasons. 1st, they can pay less wages if they offer more benefits. 2 – they need participation in these programs to make the costs worthwhile. That is my experience.

    Also, most of the items you mentioned don’t skirt medicare/social security taxes. It is rare the ones that do.

  6. Teri Newton says:

    I just realized – yes – hand in hand with less wages is less payroll taxes for employers. This is probably another factor for pushing other benefits – indeed.

  7. abe says:

    Even if you know all this information, is there really anything you can do? That is why I don’t bother. They take the taxes out and who do you fight if you think it’s wrong?

  8. Daisy says:

    “I sometimes wonder why this is not required as part of our basic education before entering the workforce”. Do you really wonder? Seems likely to me that the government has a vested interest in not educating us about the taxes we pay. If the average worker took time to do the math and see what we’re paying, there would be a lot of politicians in grave danger of being ridden out of town on a rail!

  9. Pingback: FIRE Finance

  10. lisa says:

    does anyone know if an employer can tax you twice on the same check? I got paid one week but their system was down so they hand wrote everything and didn’t take out taxes but this week they taxed me twice to make up for last week. I can’t seem to find out any info on the web. can anyone help.

  11. abe says:

    Have you talked to your employer yet? I think just letting them know they would correct it. If not, the worst that could happen is you get a bigger refund come tax time. Obviously, they aren’t supposed to take out taxes twice.

  12. Jenny Brown says:

    Even though I work I benefit from Social Security right now, at age 41, because my retired mother gets a check every month. If not I would be supporting her. So it’s a lie that we don’t benefit from Social Security.

  13. Babs says:

    thank you. I like to know why all of these tax are being took from pay checks. I think that some taxs they just make up for the hell of it.

  14. SalG says:

    Gets me very upset when I think about all this SS coming out of my pay and I will never see it.. This is very unfair to the younger community and something must be done in regards to this. I don’t blame people for working “Under the table jobs” because regardless of benefits and medical expenses, if you do not qualify for SS refunds then it’s far more convenient to work without these ridiculous withholdings..

  15. angry lady says:

    IRS is BS! boo-ya! :D

  16. ARRRGGG says:

    Ya im 19 myself,Im majoring in accounting and have a pretty good job with good pay. Seeing the amount of Social Security coming out of my pay makes me very angry. And SS will not benefit me in any way in the future, i will never see that hard earned money. :( I agree that Something should be done in regards to this. Its crazy. We get taxed on everything- what we earn, what we buy/spend. The system is really unfair and messed up and its just not something you realized until you start thinking about it.

  17. Jennifer says:

    So, how much would come out of one individual paycheck for someone who is 16 and working their first job…if that makes a difference?

  18. mccready says:

    This is a great dissection! I home school my children now, but previously a public school teacher taught my son his opinion on what we pay, why, and who should be paying more. This resource enabled me to explain what and why.
    What I want my children to learn is that they need to provide for their retirement rather than expect the federal government to do so.

  19. badrepublican.org says:

    I’m just bummed to be paying for WAR. Particularly when everyday I drive by schools that are falling down. WE NEED TO GET OUR PRIORITIES STRAIGHT as a country.

  20. Lisa says:

    I have a question for anyone who can shed some light on this subject. We are a family of 3. My husband is the only worker. Our son is still in highschool. We are low income. This year,(2008),my husbands earnings were only about $8,000. He claims 2 on his paychecks and by doing that they are taking nothing out for federal.Is that bad? We have always received the earned income credit for our son because my husband has usually met the $10,000 required line for the EIC but this year there is no way he is going to meet the $10,000 in time. So will we still get a refund beings we probably won’t get the EIC this time? And what about them not taking anything out on his paychecks for federal because he claims 2 on them? Is that a problem? If he only claims 1 on his checks that cuts his take home pay way too short which is why he claims 2 on them and then claims 3 at the end of the year on taxes. Can anyone shed light on this?

  21. pfadvice says:

    @ lisa

    The simple answer is there is nothing wrong with what you are doing as long as you won’t owe taxes. Those forms are just so that when it’s time to pay taxes, the money has already been taken out so you don’t have a big surprise on April 15.

  22. mark says:

    the anwser to your prayers is Fair Tax

  23. Jake says:

    Many schools do teach that now it is required

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>