The Paycheck Deductions Explained: What You Need to Understand

Are you trying to have your paycheck deductions explained? If yes, then you should check out our helpful guide by clicking here.

It’s the best day of the week: payday. There’s nothing like getting that check handed to you and fantasizing about the weekend to come. However, if you’re like most employees you might not even understand what your payment information is trying to tell you. Many employees don’t.

It’s 2020, and it’s about time you understood what all the sections and numbers on your paystub mean. Yes, they look confusing, but understanding deductions will put you in better control of your own financial situation.

If you need paycheck deductions explained to you, read on. We’ll walk you through what you need to know.

Gross Pay vs. Net Pay

If there’s one part of your paycheck you probably do understand, it’s the section that is labeled net pay. You’re likely used to your eye shooting straight to the number in that box, as you know that’s what you’ll be taking home at the end of the day.

You likely understand that this number is your paycheck minus deductions. You can look under gross pay to see what your actual total earnings were without any deductions taken out.

If you were to subtract your net pay from your gross pay, you’d see just how much has gone to various deductions and contributions. Once you see how much money that is, you might find that your curiosity about these deductions has grown.

Withholdings and Deductions

That’s right: money is taken out of your paycheck and given away before it even gets to your hands. To whom, and for what reason? That depends.

Withholdings on your paycheck are for payments made to the IRS. You owe a certain amount of your income in the form of taxes every year. Having this money taken out automatically, per paycheck, is supposed to make this process easier for you.

Deductions are money amounts taken out in service of various benefits. For example, you might have some money taken out of your paycheck to go to healthcare, retirement, or other such funds.

If you look closely, this should all be laid out quite clearly on your payment information. No matter where your employer makes their pay stubs, whether it’s or somewhere else, this info should be present.

On your paystub, you should see each of these deductions and withholdings broke down by category. You should be able to see the exact dollar amount given to each category: your federal taxes, your state taxes, your 401K, your social security, and so forth.

The percentage taken out of your paycheck for these is decided by either law or company policy. If you have any questions or complaints, it’s well worth talking to your employer. That’s why getting educated about deductions is a good idea!

Paycheck Deductions Explained

It can be confusing to stare at that many boxes and numbers that make up our pay stubs. If you need paycheck deductions explained, the above information should do the trick.

Need more financial advice, tips, or tricks? Keep scrolling our blog for more.

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