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Understanding your pay stub

Who is FICA and why is he taking all of my money?

You wait all week for this moment. The boss delivers your sacred paycheck to your desk and you rip it open to find the reward for your hard work and wham! It hits you like a ton of bricks. Your hard work is rewarding the government. State tax, federal tax, deduction, deduction and deduction. And would somebody please explain who the hell is FICA?

Well, I feel your pain. I was convinced for months that I was paying taxes on more money than I was making, simply because I couldn't understand my pay stub. One of my co-workers reassured me when she stated that, "We have the most confusing paychecks I have ever seen." But this doesn't make me feel any better when I have to hunt to find out exactly what I am making. So, to prevent your frustration, I embarked on a mission to determine what all of those numbers that surround your Social Security number mean. And boy, was I sorry I did. This stuff is boring. "We're talking fifth season of 'Night Court' lame," as Eric Cartman would put it.

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But I trudged through some information and here's what I found. For starters, I am not a total idiot. Whew, that was a relief. According to Margie Sturz, human resource specialist for Vincam Human Resources Inc. in Miami, she gets frequent inquiries about the maze of numbers and deductions that appear on the employees' paychecks. She says that a lot of people don't understand the column marked Y.T.D. That's year-to-date to you and me.

  • The Y.T.D. column shows how much you have actually made and paid so far that calendar year. If you looked at that and thought it was your check amount, you'd think you hit the jackpot. But, unfortunately, it doesn't work like that.
  • In the earnings column you will see the number of hours you worked and the total amount paid for those hours. If you took any sick days, vacation days or personal time, that will be listed below. And the column will also list your year-to-date gross amount. That's what you make before Uncle Sam gets his greedy little hands on your stash.
  • Take a deep breath and look at your deduction column. There are some numbers listed that may leave your head swimming, too. If you have an insurance plan -- whether it's medical, dental, life or disability -- the amount taken from your paycheck toward your health plan is listed. And again, it will include the amount you paid to date.
  • If you contribute to your 401(k), it will also be registered in the deduction and benefits column. This lists the percentage you gave from this check and year-to-date as well. If you're wondering how much your company is matching and how much you have socked away, you'll probably have to wait for the quarterly report from the investment company.
  • Another point that Sturz says brings confusion to employees is also listed in the deductions and benefits column. If your employer has a movie ticket discount program or discount tickets to theme parks, the amount you paid for those tickets will be listed. She says that on Vincam's checks, that amount is listed all year, but is only deducted one time. Apparently, she has been met with an irritated employee a couple of times and had to explain this.
  • Now let's move to the fun part: the tax column. Woo hoo, brace yourself for the excitement. All right, first you will see the federal taxes column. Oy vey, there is a lot of money going in that direction. You just dish out more and more. Ken Hubenak, a spokesman from the IRS, in Washington, D.C., says that the IRS gets a lot of calls from angry people demanding to know where that money goes. He notes that the IRS isn't who determines these figures. Blame it on Congress. But the IRS can provide assistance about tax laws.

According to Hubenak, an explanation of how your contribution to the good ol' government is divvied up can be found in the 1040A and 1040EZ tax booklets. Check out the nifty pie charts that explain the amount of money the government is pulling in from Social Security, Medicare, Unemployment, retirement taxes, personal income taxes, corporate taxes and every other way they get you in the end.

There is also a pie chart that explains where your money goes when you so eagerly pass it on to the government. Twenty percent of the "outlay" goes toward defense, foreign affairs and veterans assistance, 18 percent goes toward social programs and 15 percent goes toward the net interest on the national debt. Fifteen percent? Are you kidding me? I get a better rate on my student loans. Why can't the federal government swing a better deal? Visa's offering a 3.9 percent introductory rate. Can't Bill do a balance transfer or something? Wishful thinking.

The truth is out there
And, speaking of wishful thinking, 38 percent goes toward Social Security, Medicare and other retirement programs. But, according to a survey conducted by Third Millennium, an advocacy group for young Americans concerned about Social Security, more 18 to 34 year olds believe in UFOs than believe that Social Security will still be around when it's time for us to get our fair share. And, just as entertaining, this age group also believes the soap opera "General Hospital" will outlive Medicare.

Check out your pay stub. There are either one or two columns dedicated to FICA. The infamous, but not always understood FICA stands for Federal Insurance Contribution Act. This money, in theory, is used for Americans at the retirement age of 67 to receive a modest monthly check of $780. That amount is adjusted with inflation, but if Congress doesn't figure out how to save the program, we may never see that money, according to Richard Thou, executive director of Third Millennium which is based in New York. So, next time you are in the grocery store and someone starts in on you for being a slacker, you may just want to remind them that the money that's coming out of your paycheck could very well be covering the groceries in their cart.

Until recently, the amount you paid was combined into one figure, but now employers are dividing the amount you pay to FICA into two amounts. Social Security gets 6.2 percent of your income and Medicare gets 1.45 percent. But you may not know that your employer matches that amount and sends the government quarterly checks to make up their difference. That means if you are self-employed, you can look forward to footing the entire 15 percent deduction yourself.

We finally get a break ... sort of
However, if you're a student, you could get a break from FICA, at least for now. The IRS includes a student FICA exemption. This precludes students from participating in Social Security and Medicare deductions. According to the IRS, if the employment is "incidental" to the education then you can be exempt. Plus, you have to meet the criteria as a full-time student to make the cut. Check with your financial aid office to see if you meet these criteria.

Finally, make sure to read the memo area of your check. Employers sometimes include important information about the pay period or methods that you need to take the few seconds to read over. Besides, you never know, your next paid holiday may be listed and if you don't read it, you could show up Monday to an empty office.

-- Posted: March 11, 1999

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See Also
Finding (and loving) your first job
Learn your way on a new job
Making the most of your summer income
Financial advice glossary
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