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July 30, 2019

Beginner’s Guide to Paycheck Deductions

If you’ve recently started your first job, you were probably in for a bit of a surprise when you saw the difference between your gross and net pay. Here’s a handy guide to all of those pesky—but important!—paycheck deductions.

Federal Income Tax

A large portion of your deductions goes toward federal income tax. The exact amount that you owe each paycheck depends on your income level. According to the IRS, this is the percentage of your gross pay that goes toward federal income tax for 2019:

Annual Income for Individuals Annual Income for Couples Filing Jointly Tax Rate
$9,700 or less $19,400 or less 10%
$9,701 - $39,475 $19,401 - $78,950 12%
$39,476 - $84,200 $78,951 - $168,400 22%
$84,201 - $160,725 $168,401 - $321,450 24%
$160,726 - $204,100 $321,451 - $408,200 32%
$204,101 or more $408,201 or more 35%

Luckily—at least for the sake of simplicity!—Florida has sales tax but no income tax. So, while you have to pay tax on most items that you purchase, you don't have any state income tax taken directly from your paycheck.


Social Security and Medicare

While Social Security and Medicare are often lumped together as one line item on a paystub, they’re actually two separate programs. Medicare is a federal health insurance program aiding individuals 65 or older, as well as younger people with disabilities. Social Security supplements retirees and disabled people, as well as families of deceased, retired, or disabled workers. From your gross pay,  6.2% goes to Social Security, and 1.45% for Medicare. (There are a few circumstances where the percentage deducted for these programs may be larger, especially if you’re a high earner. The IRS website has more information about additional withholdings for Social Security and Medicare.)



The last deduction to cover—but certainly not the least important!—is for retirement savings. Whether you have a 401(k) retirement plan with your employer or are saving money in an IRA (Individual Retirement Account), these funds are removed from your gross pay. In other words, federal income tax, Social Security, and Medicare withholdings don’t apply to the funds you set aside for retirement.