In the age of direct deposit, a lot of people don’t look at their pay stubs anymore. And even if they do, some of the information on there can come as a surprise, especially if you don’t understand it. One part of your paycheck that directly affects how much pay you take home are the deductions. But if you don’t understand what the various pay stub deduction codes stand for, it can be confusing and leave you wondering why certain amounts of money are being taken from your pay.
What are pay stub deduction codes?
Pay stub deduction codes are the name given to a number of abbreviations found on every paycheck to represent the amount of money set aside each pay period for taxes and other important purposes.
Every paycheck, there may be deductions for tax purposes – such as federal, state, and potentially local taxes – depending on where you live. There can also be deductions for benefits you may choose to contribute to, like health insurance or retirement accounts, also known as pre-tax or post-tax deductions. Whether or not these deductions exist and the amount of these deductions can vary greatly depending on your individual employment situation. These potential deductions come into effect when your company offers a benefit such as health insurance, for example, and you choose to participate, thus requiring a contribution from your paycheck towards the cost.
Deduction codes are the common abbreviations given to those deductions which are present on every paycheck. Here are the most common pay stub deduction codes, and what they stand for:
- FICA – Federal Insurance Contributions Act
- YTD – Year-To-Date
- FL – Family Leave
- FWT – Federal Withholding Tax
- SWT – State Withholding Tax
- INS/MED – Insurance or Medical deductions
- 401k/Ret – Retirement contribution
There may be other pay stub deduction codes – or the abbreviations that are used may be slightly different – depending on your specific employment situation, but these are the most commonly used.
What are the 4 most common tax deductions on a pay stub?
Among those pay stub deductions, there are four main ones for taxes. They are as follows:
- Federal Withholding Tax (FWT)
This is required for every citizen, for the maintenance of several areas of the governance of the country. Your federal income tax rate will depend on your salary. - State Withholding Tax (SWT)
As with federal tax, state income tax is required in most states and simply pays for expenses on a state level rather than nationwide. There may also be taxes on a local level. - Federal Insurance Contributions Act (FICA) – Medicare
A 1.45% deduction is required to contribute towards Medicare. - FICA – Social Security
A social security tax is also deducted from your paycheck, and that percentage currently stands at 6.2%.
As mentioned previously, there may also be other deductions for various purposes, depending on where you live and what your employment situation is, but these are the most common tax deductions – each of which is mandatory.
What are the 5 mandatory deductions from your paycheck?
You may have heard that there are four mandatory deductions, but you may also have heard that there are five — and perhaps it has caused some confusion. To clear it up, all of your mandatory deductions will be the four from above, plus one more:
- Federal withholding tax
- State withholding tax
- FICA – Medicare
- FICA – Social Security
- Court-ordered payments
The last mandatory deduction of “court-ordered payments” covers anything that you have been legally required to pay by a court of law. It can be for various reasons but is not a mandatory deduction for all individuals, as it only applies to those with court-ordered payments. This could be things like alimony, child support payments, or other similar payments.
All of this can be confusing if you do are in charge of payroll – or simply want to understand your paycheck. Keeping track of all deductions and making sure that everything is legally above board can be a job all in itself. But if you use Check Stub Maker to create pay stubs, the tool will do all of the math for you, leaving you more time to take care of more important things.