Adulting Series: How to Make Sense of Your Paycheck

This article is part of my Adulting Series. In my experience as a teacher of high school and community college young adults, I've been asked many questions about general life stuff we all need to know about. I decided to write a series of articles to address these questions, as well as other information that is worth sharing, even if no one specifically asked.

Getting your first paycheck is exciting—until you look at it and wonder where half your money went. Welcome to adulting! Between taxes, insurance, and other mystery deductions (what is FICA???), your paycheck can feel like a puzzle no one taught you how to solve. Don’t worry—we’ve all been there. In this post, we’ll break down your paycheck in plain English so you actually know what you’re earning, what’s being taken out, and why it matters. Let’s make sense of your paycheck (or direct deposit notice) together.

Gross Pay and Net Pay

Looking at your paycheck or direct deposit receipt, the gross pay is your total income before taxes and other deductions. If you're paid hourly (not salaried) it will also show your hourly pay rate. The gross pay section will also include bonuses and other non-ordinary income you may receive. Unfortunately, the gross pay section typically looks very different from the net pay section, because net pay is the amount of money you receive after taxes and other deductions are withheld.

But what are those deductions and why are they...just why? Let's break them down:

Federal Income Tax

When you were hired your employer gave you a form, called a W-4 form, to fill out and it tells your employer how much federal income tax to withhold from your paycheck. The W-4 includes questions about your filing status (like single or married), how many dependents you have, and if you want extra money withheld from each paycheck. There’s also a section for multiple jobs or if your spouse works—this helps get the withholding amount more accurate. Can you change it later? Yes! Life changes (like getting married, having a kid, or picking up a side job) can affect your taxes. You can submit a new W-4 to your employer at any time (see your payroll department or check the company's website for a new W-4 form).

sample pay stub

State Income Tax

If you live in a state with no income tax, you won't see this line on your paycheck. If your state does have income tax, your employer will give you a state W-4 to complete. They will use this information to determine how much state tax to withhold. It's a very similar process to the federal tax withholding.

What is FICA?

Sometimes you'll see a deduction called FICA. FICA stands for the Federal Insurance Contributions Act, and it's a mandatory deduction from your paycheck that helps fund Social Security and Medicare. Your employer may also list these deductions separately, but either way they're required.

• What it covers:

  • Social Security helps provide income to people who are retired or unable to work due to disability.

  • Medicare helps cover health care costs for people age 65 and older, and for some younger people with certain disabilities.

• How much is taken out:

  • As of now, 6.2% of your paycheck goes to Social Security and 1.45% goes to Medicare.

  • Your employer matches this amount—so they pay the same percentages on your behalf.

• You can’t opt out: FICA isn’t optional. It’s automatically deducted from each paycheck, no matter your job or income level (up to a certain income cap for Social Security).

  
  

Insurance and Other Deductions

Yep, that's right - there are probably even more deductions from your pay. These will most likely include optional benefits you have to pay for, such as health insurance, dental insurance, life insurance premiums, disability insurance, and contributions to retirement plans such as 401K or a pension plan. While these are "optional" deductions, the benefits they pay for are extremely important for now and the future. You may be tempted to cut them out for a larger paycheck, but don't do it - believe me, your future self will thank you.