What Are All These Codes and Deductions on My Paycheck?
At some point in your life, you probably looked at your paycheck and said, “How is it possible that I make this much money, but I’m only taking home this much money?” Everyone understands that taxes are withheld from their paychecks, but many of the codes and deductions might as well be written in a different language.
In the age of direct deposit, it can be easy to ignore your printed pay stub when it doesn’t have a real check attached to it. However, everyone should take a close look at their pay stub for each pay period to make sure the numbers are correct.
This is especially true when there is a change that affects your compensation in some way. For example, if you receive a pay raise, not only should your pay go up, but your tax withholdings and retirement plan contributions should also go up. An error could prove costly if you’re not paying attention.
First, let’s explain withholdings and deductions to make sure we’re using proper terminology. A withholding is the term used for the amount of federal, state or local tax taken from your pay. A deduction is the term used for other amounts taken from your pay, such as health insurance and retirement plan contributions. Your paycheck will also show your Social Security number, marital status, and the number of allowances you’re claiming.
There could be dozens of codes for withholdings and contributions depending on your employer and how your compensation and benefits are structured. For the purpose of this article, we’ll focus on the codes that are seen on the vast majority of paychecks.
Gross and Net Pay
Gross pay refers to your total earning before any money is withheld or deducted. For salaried employees, gross pay is the total pay divided by the number of pay periods. For hourly employees, gross pay is the number of hours worked multiplied by the hourly rate. If you’ve earned overtime, that will be reflected in your gross pay.
Net pay is the final amount you receive in your paycheck after all withholding and deductions.
Federal and State Taxes
The code for the amount that automatically goes to the federal government could be FED, FIT (federal income tax), FTW (federal tax withheld), or FITW (federal income tax withheld).
Similarly, the code for the amount that automatically goes to the state government could SIT, STW or SITW. If you work remotely in a different state than your employer, make sure the state is correct. The state where you live, or resident state, will tax all your income.
Some states have varying non-resident tax laws, while others have no income tax at all. In states like Pennsylvania and California, there is also a withholding for local taxes for each city or township.
Social Security and Medicare
These are considered mandatory federal payroll taxes with few exceptions. FICA (Federal Insurance Contributions Act) is the code that combines the withholding amounts for Social Security (6.2 percent) and Medicare (1.45 percent). Employees who earn more than $200,000 per year are also subject to a 0.9 percent Medicare tax withholding.
SUI, or state unemployment insurance, is the amount withheld from your paycheck to fund the state’s unemployment benefits that are distributed to people who have lost their jobs. In most states, only employers pay this tax. However, in New Jersey and Pennsylvania, employers withhold the tax from employee wages and pay the tax to the state.
There are number of deductions that employees agree to have taken from their pay. These include but are not limited to:
- 401K or other retirement account
- Health insurance
- HSA (health savings account)
- FSA (flexible savings account)
- Union dues
You might also see codes for other amounts, such as family/medical leave or vacation pay, which indicate where your pay is coming from rather than a withholding or deduction.
Again, it’s your responsibility as an employee to read your pay stub and make sure withholdings and deductions are accurate. For salaried employees, these figures will be virtually identical unless your compensation or the tax code changes. If you notice unusual fluctuations in your paycheck or something just doesn’t look right, contact your human resources department.