Understanding Withholding

You are going to have to deal with the unfortunate reality that your take home pay is a lot less than your gross salary — often 40% less after withholding. Some withholding that reduces your take-home pay is mandatory, and other deductions or deferrals depend on choices you make.

One area where there’s no choice: you’ll have to prepay taxes whether you want to or not, including:

• Federal income tax
• State income tax
• FICA taxes for Social Security and Medicare

Your take-home pay is also reduced by amounts you agree to have withheld to pay for:

• Health insurance through your employer’s plan
• Pretax contributions to a retirement savings plan, a health savings account, or both

Pretax withholding actually works in your favor because it reduces your current taxable income and so the income tax you owe.

To get a feel for your take-home pay and what you’ll have available to spend, try this paycheck calculator: http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/salary-paycheck-calculator.aspx Links to an external site.

 

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