Decode your pay stub by understanding the five most common deductions taken out of your paycheck every pay period, from FICA to 401k.

Why Your Pay Check Isn't Your Full Salary

Your pay stub can sometimes look like alphabet soup. Understanding these codes is essential for financial literacy. Here are the five most common deductions you will encounter on a regular basis.

1. Federal Income Tax

This is typically the largest chunk taken out. It's a progressive tax, meaning higher parts of your income are taxed at higher rates. Your withholding is determined by the Form W-4 you filled out when you started your job.

2. FICA (Federal Insurance Contributions Act)

FICA is a mandatory federal payroll tax. It is split into two parts:

• Social Security: 6.2% of your gross pay.
• Medicare: 1.45% of your gross pay. Together, they total 7.65%. Your employer also pays a matching 7.65% on your behalf, so the government actually receives 15.3% in total.

3. State & Local Taxes

Depending on where you live and work, you may owe a percentage of your income to your state or city. States like California and New York have high income taxes, while states like Florida and Texas have none at all. Local municipalities can sometimes levy their own exact taxes as well.

4. Health and Welfare Benefits

Many employers offer group insurance rates. Your contribution for medical, dental, and vision is usually deducted directly from your check. In most cases, these are pre-tax, meaning they save you money on final income taxes.

5. Retirement Savings (401k/403b)

Automated savings are the best way to build wealth. Whether you contribute to a traditional 401(k) or a Roth 401(k), the money is taken out before you ever see it, helping you hit your savings goals effortlessly.

How to Check for Errors

You should compare your pay stub against an independent paycheck calculator at least once a quarter to ensure your withholding amounts haven't shifted unexpectedly.