Paychecks & Taxes
Many students earn their first paycheck while in college. We can help you understand what all of the information on your pay stub means and explain your tax withholding. We can also direct you to resources for tax filing.
What is a paycheck?
Your paycheck is the money your employer pays you for doing your job. To get the money, you cash your paycheck at a business.
You can deposit your paycheck in your bank or credit union account. Or you can cash your paycheck with a bank, credit union, or another business.
What is direct deposit?
Direct deposit is when your employer puts your paycheck into your bank or credit union account. Many employers offer direct deposit.
What is a pay stub?
When you get a paycheck, you also get a pay stub. A pay stub is sometimes called an earnings statement.
Your pay stub tells you:
- how much money you earned
- the time, or pay period, you are getting paid for
- what taxes and other money have been taken out, or deducted, from your pay
What is gross pay?
Gross pay is all the money you earned at your job. But you do not keep all of your gross pay. Your employer will take money out of your gross pay for taxes and benefits.
What is take-home pay?
Take-home pay, also called net pay, is the money you get in your paycheck. Your employer takes money from your gross pay for taxes and benefits. The money left in your paycheck is your take-home pay.
What is FICA?
FICA stands for Federal Insurance Contributions Act. FICA is money the federal government takes out of your paycheck. This money is used for the government’s Social Security and Medicare programs.
What are tax withholdings?
The law says your employer must take money out of your paycheck for taxes. You can choose how much money to withhold from — or take out of — your paycheck. When you have a big change in your life, you might owe more or less money in taxes than before. To have the right amount of money come out of your paycheck for taxes, you change your withholdings.
Why do I bring home less money than I earn?
Your employer takes out, or deducts, money for taxes before you get your paycheck. The law says that employers must deduct money for:
- State tax
- Federal tax
- FICA (Social Security and Medicare taxes)
- Disability or unemployment insurance
Employers also take out money for benefits, if you have them. They include:
- health insurance
- a retirement savings account
Why would I want my employer to take out money for retirement savings?
The money can grow in a retirement account until you retire. A 401(k) is one type of retirement account.
Some employers offer a match. A match means the employer will put extra money into your retirement account if you put some of your money into the account.
What is a W-2?
A W-2 is a form your employer sends you at the end of every year. A W-2 says how much money you earned during the year. Your W-2 also says how much money was taken out of your paycheck for taxes during the year. You use your W-2 when you file your taxes with the Internal Revenue Service (IRS) and some states.
When do I need to change my tax withholdings?
Check your withholdings when you have a big change in your life. You might owe more or less money in taxes than before. You would want to withhold more money if you owe more in taxes. You would want to withhold less money if you owe less in taxes.
Changes that affect your taxes could be if you:
- get married or divorced
- have a baby
- change your job
Talk to your employer or the human resources department if you have a big change.