- If you receive a W-2 from your employer, or if you carefully examine your pay stub, you will find that your gross pay is very different from your net pay. This is because your employer is required by law to withhold certain taxes from your paycheck and pay them on your behalf. Don't worry---if your employer withheld too much, you'll probably qualify for a tax refund when you file your returns.
- OASDI stands for Old-Age, Survivors and Disability Insurance---also called your "Social Security tax." Your employer must withhold 6.2 percent of your income to pay this tax, which goes to pay Social Security benefits to current retirees. Your employer matches this 6.2 percent out of company funds, for a total of 12.4 percent paid on your behalf.
- The Medicare tax, or Hospital Insurance (HI) tax, goes to pay current Medicare benefits to seniors over age 65. Your employer must withhold 1.45 percent of your gross pay to pay the Medicare tax, and must match that with their own funds.
- You may see items like a 401k or 403b plan on your pay stub. These are workplace-sponsored retirement plans. Some workplaces enroll you automatically, while others require you to affirmatively enroll. If you are contributing, your contributions go into the plans pre-tax. You are not charged income tax on the amount you contribute.
- If your employer offers health insurance as an employee benefit, they withhold your share of the premiums from your paycheck. Again, you are not charged income tax on this amount.
- Your employer must send regular income tax payments to the IRS on your behalf. This amount is calculated based on your gross income, minus deductions, and the number of exemptions you claimed on your W-4 form when you joined the company.
- If your state has an income tax, your employer must also deduct part of your income from your paycheck and send it to the state revenue department. You will find this itemized on your pay stub and W-2 as well.
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