Why money gets deducted from paychecks

• ✺Understanding deductions helps you make sense of why your paycheck is smaller than your gross pay or hourly rate times hours worked.
• ✺Knowing what each deduction funds (like Social Security and Medicare) helps you understand benefits you may rely on later in life.
• ✺Reviewing your deductions helps you catch payroll errors or confirm your benefit elections are set up correctly.

W-4

A form employees complete to tell their employer how much federal income tax to withhold from pay.

FICA

The Social Security and Medicare taxes taken out of most paychecks.

Withholding

Income tax your employer takes from each paycheck and sends to the government for you.

Garnishment

A court- or government-ordered deduction from pay, often for debts like child support.

• ✗Not reviewing or updating your W-4 after a major life change, like marriage or a new dependent.
• ✗Assuming all deductions are taxes, when some are for benefits you elected, like health insurance.
• ✗Not checking your pay stub for errors in deduction amounts.
• ✗Being surprised by FICA taxes, not realizing they apply regardless of your W-4 settings.
• ✗Ignoring a wage garnishment notice instead of understanding why it's happening.

• !FICA tax rates (Social Security and Medicare) are set by federal law and apply the same way regardless of your W-4 choices.
• !A few states have no state income tax at all, which changes what's withheld in those states.
• !You can update your W-4 at any time through your employer if your situation changes.
• !Benefits deductions, like for health insurance or a 401(k), only apply if you've actively enrolled in them.

• Paycheck deductions mainly include federal income tax, FICA (Social Security and Medicare), and often state tax.
• Benefits you've enrolled in, like health insurance or retirement plans, are also deducted from your pay.
• Your W-4 controls federal income tax withholding, but not FICA tax rates.
• Reviewing your pay stub helps you understand and verify each deduction.

Totally optional. Nobody's grading you.

1. 1.Review your most recent pay stub and identify each deduction listed.
2. 2.Consider whether your W-4 still matches your current situation, especially after a life change.

Related lessons:

• How paychecks work
• Gross pay versus net pay
• What a W-4 is

• Social Security and Medicare taxes (FICA)
  Social Security Administration(opens in a new tab)
• Tax Withholding Estimator
  Internal Revenue Service (IRS)(opens in a new tab)