Do your employees understand the info on their paychecks? Paychecks contain a lot of data and some of it is confusing. Have you ever looked at a paycheck and wondered, what is FICA and why is it keeping so much of my money? Here is a brief overview of how to read employee pay stubs to help your staff know where their money is going.

Gross pay

Gross pay is the amount of money you agreed to be paid on an hourly or annual salary basis, including overtime and other forms of pay. This is what you would receive before any deductions – if nothing was taken out of your paycheck.

Net pay

Net pay is the amount you take home after deductions are made.

Deductions

A deduction is any amount that is taken out of a paycheck for federal, state and/or local taxes and employee benefits. Some deductions are taken out before taxes (e.g., medical insurance, 401k contributions) and some are taken out after taxes (e.g., garnishments, supplemental life insurance).

Federal income tax (FIT) withholding

FIT is the amount required by law for employers to withhold from wages to pay taxes. This amount is based on information provided on the employee’s W-4.

State income tax (SIT) withholding

SIT is a percentage deducted from an individual’s paycheck for state income taxes. All but seven states (AK, FL, NV, SD, TX, WA and WY) have state income taxes.

FICA

FICA stands for Federal Insurance Contribution Act. This tax includes two separate taxes for employees: Social Security and Medicare. These two taxes may be combined as one or listed separately on a paycheck stub.

GTM helps businesses of all sizes by making payroll processing simple and convenient. Contact us or get a free payroll quote to learn more.