When your employer creates a pay stub, they have to mandatorily deduct various taxes and deductions from your gross salary. You are sure to be stumped by the various deduction codes that you see when you check your stub maker.
Here are some of the pay stub deduction codes that are commonly found in your pay stub-
Federal Income Tax- This is levied on every working person in the US. You have to pay this tax under all circumstances. It may show up on the paystub maker as FED in short or Federal Tax in full. If your payroll department makes a mistake in assigning the tax, you may have to pay a significantly larger amount of tax or a fraction of it.
The best way to check the deduction is to understand the income tax brackets defined in the US federal tax rules.
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State Income Tax- Most US states charge an additional State Income tax on top of the Federal Income Tax. The few that don’t include Florida, Alaska, Texas, South Dakota, Washington, and Wyoming. In fact, two others- Tennessee and New Hampshire do not even tax any wages earned. Anyways, for those that do, the state income tax is shown in the paystub generator as initials- for example, the Ohio State Income Tax is shown as ‘OH ST TX’.
FICA- On every pay stub, you will find a deduction for FICA or Federal Insurance Contributions Act. This is a social security deduction where both you and your employer will contribute about 6.2%` of your pay check towards this.
This is a social security deduction made specifically for medical use. From your pay stub, around 1.45% is deducted for this. It is shown as ‘MED’, ‘FICA MED’ or FIM’ in your pay stub.
Deduction for other benefits
There are a host of other benefits which are deducted from your pre-tax income. For simple processing, your payroll department may use initials to identify them. For example, dental insurance may be shortened to ‘DEN’ or ‘DENT’.
Any additional insurance you have taken from your employer will be deducted from your gross pay. This includes health, dental, home, or any other type of insurance.
Retirement saving plans
If you are planning to avail a retirement saving plan such as the 401k plan, this too will be deducted from your pay. With this plan, you choose a select percentage from your pre-tax salary that you would want to contribute to this retirement plan.
Flexible spending accounts
You can also choose to sign up to a flexible spending account where a set percentage of your pre-tax income is used to pay for health insurance co-payments, prescription drugs, and other deductibles.
Health saving accounts
This is another plan where you set aside some of your pre-tax income for medical expenses. The deductible amount for this is also quite high.
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You will need to choose a high deductible health insurance plan for this.
Remember, all of these deductions are payable by you either by your consent or if they are mandatorily needed by Federal and State Government rules. Do check your w2 form online to know what has been deducted from your pre-tax income.