By Michelle Singletary
April 7, 2026
The first time I got a paycheck, I was horrified to see that what I earned wasn’t what I got to keep.
There’s a cruel accuracy in the term “pay stub,” defined as something cut short or stunted. Yet it’s an apt word for a document that lists all the ways your money is carved up before it’s deposited into your bank account.
I’ve been working for decades, and I’m still shaken by the boxes of deductions.
On more than one occasion, I’ve heard workers holler, “Who is FICA and why is he taking all my money?”
Yup, FICA feels like a scam, but it represents deductions that help fund the financial needs of your older self.
FICA is an abbreviation for the Federal Insurance Contributions Act and contributes to the Social Security and Medicare programs.
This payroll withholding includes Social Security’s Old-Age, Survivors and Disability Insurance (OASDI), which provides benefits to seniors, workers who become disabled and families in which a spouse or parent dies.
In 2026, employees pay a 6.2% OASDI tax on the first $184,500 earned. Any earnings above that limit are “Social Security tax-free.” Your employer also pays Uncle Sam an additional 6.2%. If you’re self-employed, you pay the full 12.4% OASDI tax rate, though you also get a deduction for half of what you pay.
The Medicare tax is 2.9% and helps fund health care for Americans 65 and older. Medicare is also available to some people younger than 65 with disabilities or end-stage renal disease.
Unlike Social Security, Medicare has no wage cap, so all your earnings are subject to the tax, which is split between you (1.45%) and your employer (1.45%). There’s an additional 0.9% tax for high earners who earn more than $200,000. (The threshold is $250,000 for married couples filing jointly.)
I know, adulting is a pain!
But stay with me, because there’s more. Here’s a breakdown of the other taxes and deductions:
Federal withholding. When you start a new job, you are asked to complete a W-4 form, also known as the IRS’s Employee’s Withholding Certificate, which allows your employer to withhold federal income tax from your pay. If too little is withheld, you will generally owe the government money when you file your tax return and may owe a penalty. If too much tax is withheld, you will generally be due a refund.
Be sure to double-check your filing status, which determines the tax rate on your income. The five filing statuses are single, married filing jointly, married filing separately, head of household and qualifying widow(er) with a dependent child.
State withholding: Any state and/or local taxes withheld from your pay. Eight states, including Florida and Texas, don’t collect personal income tax.
Working across state lines – working in New York City but living in New Jersey – can complicate your taxes, so it is important to verify that you aren’t paying taxes to two states for the same income. Generally, you must file a return in the state where you live unless that state has no income tax.
To help commuters, many neighboring states have “reciprocity” agreements that prevent you from being taxed twice. In most cases, the state where you live will give you a credit for any taxes you pay to the state where you work. However, if you are a remote employee, the rules can be complex. It is advisable to consult a tax expert to determine whether you are required to file multiple state returns.
Before-tax deductions: In this section of your paycheck, you’ll find money that is exempt from income taxes, including medical insurance and contributions to a flexible spending account, which allows you to set aside money tax-free for qualifying out-of-pocket health expenses. When you set up one of these accounts, money is deducted from your paycheck on a pretax basis. If you can afford to fund an FSA, it’s a good tax break.
Money you contribute to a tax-deferred retirement account would also appear on your pay stub. Just so you know, retirement contributions are not exempt from Social Security and Medicare taxes.
Wondering how much you should contribute to your retirement plan?
Fidelity Investments recommends saving 15% of your gross income for retirement, including any matching contribution from your employer.
Don’t panic. Yes, that’s a lot of money to save when you first start your career. But don’t let that benchmark discourage you from saving. It may take years to reach that goal, and that’s OK. Save what you can. Each year, push yourself to save more.
Overall, pretax deductions reduce your taxable income and therefore, the amount of money owed to the government.
After-tax deductions. Deductions that are not exempt from income taxes and FICA. These include life insurance, long-term disability insurance, union dues and charitable contributions made through your employer. This is where you would find Roth 401(k) contributions. Roth contributions are retirement savings made with money that has already been taxed (after-tax dollars). Because you pay taxes up front, your contributions and all investment growth are tax-free when you withdraw them in retirement.
To save money, it’s tempting to skip employer benefits such as disability insurance. However, consider this: According to the Social Security Administration, about one in four 20-year-olds will become disabled before reaching age 67. If it’s offered, consider getting disability insurance because you’re more likely to become disabled than to die young.
Employer-provided benefits: Benefits paid for by your employer, such as matching contributions to a retirement savings plan.
Total gross pay: This represents what you have earned for the current pay period and year to date before any withholdings or deductions.
Net pay: The depressing amount of earnings you ultimately get to take home after all taxes and deductions.
Pro tip: When you change jobs, be sure to save a digital copy of your final pay stub, which contains important information about any pension, retirement contributions and salary data.
If you’ve gotten through all this information, good for you. It’s important to review it regularly because incorrect data could cost you a lot of money.
I know it’s hard to see your gross pay slashed for benefits you might not receive for decades, but understanding the anatomy of your pay stub is the first step toward managing your personal finances.