You just landed your first job and can’t wait to get your first paycheck. Before you get too excited and make plans for how you’ll allocate and save your earnings, you should know that your paycheck might be less than you may have expected. There are several possible deductions that will decrease the amount of money you actually receive in your paycheck. So, even if you get paid $10 per hour, your paycheck won’t be $10 times the number of hours you work.
While not all paychecks are the same, here are the most common paycheck features you need to know about:
- Hours: The number of hours you worked during the pay period.
- Gross pay: The total money you earned during the pay period. You may see totals for the current period, and year-to-date.
- Rate: The amount of money you earn per hour worked.
- This period: The total money you earned during the pay period.
- Net Earnings YTD: The amount paid in your paycheck. Calculated by taking your gross earnings and subtracting any withholding and deduction amounts.
- Federal, state, and local tax withholding: Money withheld to send to the federal, state, or local government to pay toward your taxes. Calculated based on your earnings, deductions, and the W-4, state, or local withholding form you submitted when you were hired. Note that not all states and localities have tax withholding — residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t pay state income tax.
- Medicare tax: Equal to your gross pay less certain qualified deductions times 1.45%, the current rate.
- Social Security (SS) or Old Age Survivor and Disability Insurance (OASDI) tax: Equal to your gross pay less certain qualified deductions multiplied by 6.2%, the current SS tax rate, and subject to an annual wage limit. Could be combined with Medicare taxes and listed as Federal Insurance Contributions Act (FICA).
- State disability insurance (SDI): Some states require employers to withhold income to pay for state-based disability insurance. Rates vary per state — California, Hawaii, New Jersey, New York, and Rhode Island all have state-mandated disability insurance requirements.
- Benefit deductions: May include health, dental, vision, health saving plan, and any other insurance. The amount is based on the benefits your employer offers.
- 401(k), 403(b), Thrift Savings Plan (TSP): Retirement plan deductions taken out of your paycheck and put in your retirement account on your behalf. You may not be eligible for this at your first job, but as you age and enter the workforce it’s important to be familiar with retirement saving options.
- Union dues: If you belong to a union, dues may be deducted from your paycheck.
- Net Pay (YTD): The total amount in your paycheck, after taxes and other withholdings.
- Paid Time Off (PTO): Number of hours of PTO or vacation time you have earned. Sick time may also be listed, depending on your employer.