Ever wondered what all those different line items on your PMA check stand for? Well we’re here to help. Below is a quick breakdown so that you can see what these various deductions mean to you and your paycheck.
1. Gross vs. Net Pay First, let’s discuss the difference between gross and net pay. Gross pay is what you make before taxes. Net pay is what you actually take home (after taxes).
2. Federal Income Tax (FIT): You pay federal income tax (FIT) on each check. According to the IRS, the federal income tax funds national programs such as defense, foreign affairs, law enforcement, and interest on the national debt. [source]
The FIT amount depends on a few things: your marital status, number of dependents you claim, additional withholdings, exemptions and last but not least, your income. Your income may be taxed anywhere from 10 – 35%.
Quick Tip: Obtain the assistance of an experienced and credible tax preparer so you determine the adequate number of dependents/allowances to claim on your W-4 Form. If you claim too many dependents, few taxes will be withheld from your paycheck, but you will have to pay the remaining taxes (usually a very large amount) once tax day rolls in.
3. Medicare: The 2012 employee tax rate for Medicare is 1.45%. The rate was the same in 2010 and 2011. This percentage is withheld from each employee and your employer matches the amount. Medicare tax provides medical benefits to eligible individuals, 65 years of age or older.
4. State Disability Insurance (SDI): California provides Disability and Paid Family Leave coverage to eligible individuals through this tax.
5. State Income Tax (SIT): Forty-three states (including California) impose an income tax on individuals. Like FIT, SIT is determined by your filing status and income level.
6. Social Security (SS) or Old-Age, Survivors, and Disability Insurance program (OASDI): The current social security tax rate (for employees) is 4.20%, which is deducted from your paycheck. Your employer pays 6.20%. There is cap on the Social Security tax that can be withheld from an employee. For 2011, you do not pay Social Security taxes on any earnings above $106,800. [source]
Note: FICA (Federal Insurance Contributions Act) is the social security and Medicare tax combined. You and your employer both contribute a percentage of your income to this tax.
7. Prorata: This line is the easiest and simply outlines your union dues. You may have other items such as a deduction for retirement (your 401K), employee stock options, etc. If you see an deduction that you’re not particularly sure about, ask the appropriate personnel.
So now that these items have been broken down for you, do you understand your paycheck better? Why or why not? Share your thoughts in a comment below.