When you receive your paycheck, it’s natural to focus on the amount you’re taking home. But have you ever wondered where the rest of your money goes? Each deduction listed on your pay stub serves a specific purpose and helps support essential programs or benefits. Understanding these deductions can help you manage your finances better and ensure that your paycheck adds up the way it should.
At Marcus, Fairall, Bristol + CO., PLLC, our experienced accounting firm in El Paso helps individuals and businesses make sense of every dollar. Call (915) 775-1040 today to learn more.
Federal and State Income Taxes
One of the largest deductions you’ll see on your paycheck is for income taxes. These taxes are collected by the federal government — and in some states, by the state government as well. Texas, however, is one of the few states that doesn’t collect personal state income tax, which is good news for El Paso employees. However, New Mexico does, and if you are an El Pasoan with income from New Mexico, you will have to file a New Mexico State income tax return along with your Federal return.
The federal income tax is based on the information you provide on your W-4 form. This includes your filing status (single, married, etc.) and the number of dependents you claim. The more dependents you have, the less tax will be withheld from your paycheck.
Your employer uses this information to calculate how much federal income tax to withhold. This money goes to the Internal Revenue Service (IRS) to pay for public programs such as national defense, education, healthcare, and infrastructure.
If you’re unsure whether the right amount is being withheld, our accounting firm can review your pay stubs and W-4 form to help you avoid surprises at tax time.
Social Security and Medicare (FICA Taxes)
Another key deduction on your paycheck comes from the Federal Insurance Contributions Act (FICA), which includes both Social Security and Medicare taxes. These programs are designed to provide financial support for retired individuals, people with disabilities, and certain dependents.
Here’s how it breaks down:
- Social Security tax: 6.2% of your earnings, up to a specific annual limit.
- Medicare tax: 1.45% of your total wages, with no limit.
Your employer matches these contributions, meaning they pay the same amounts on your behalf. Together, these funds go toward your future benefits when you retire or if you become disabled.
As an accounting firm that specializes in payroll and tax services, we often help businesses ensure these deductions are properly calculated and reported. This not only keeps companies compliant but also protects employees’ financial security.
Health, Dental, and Vision Insurance
If your employer offers health insurance benefits, you’ll notice deductions for these on your paycheck as well. These may include health, dental, or vision insurance premiums. Depending on your plan, your employer might cover a portion of the costs, while the rest is deducted from your wages.
Insurance deductions are usually pre-tax, meaning they’re taken out before taxes are calculated. This can lower your taxable income and help you save money. However, every plan is different, so it’s important to review your benefits package carefully.
At Marcus, Fairall, Bristol + CO., PLLC, our accounting firm helps both employers and employees understand how insurance deductions affect overall compensation. We also assist business owners with designing benefit plans that are both affordable and tax-efficient.
Retirement Contributions (401(k), IRA, etc.)
Saving for retirement is one of the most valuable paycheck deductions you can make. Many employers offer retirement plans such as a 401(k), 403(b), or similar program. When you contribute to one of these accounts, a portion of your paycheck is automatically invested for your future.
There are two main types of contributions:
- Traditional (Pre-Tax): Money is deducted before taxes, which lowers your taxable income now. You’ll pay taxes later when you withdraw funds during retirement.
- Roth (After-Tax): Money is deducted after taxes, so you don’t pay taxes when you withdraw it later.
Your employer may also match a portion of your contributions, which is essentially free money for your retirement.
Our accounting firm works closely with clients to help them understand the long-term tax advantages of contributing to retirement plans. Whether you’re just starting your career or planning your retirement, professional guidance can make a big difference in building your savings.
Voluntary Deductions
In addition to taxes, insurance, and retirement contributions, some paycheck deductions are voluntary. These can include:
- Life insurance premiums
- Disability insurance
- Health savings account (HSA) contributions
- Flexible spending accounts (FSA)
- Charitable donations
These deductions are optional and can often be customized based on your financial goals. Many of them offer tax benefits, but they also reduce your take-home pay, so it’s important to choose wisely.
An accounting firm like Marcus, Fairall, Bristol + CO., PLLC can help you evaluate the impact of these deductions on your overall budget. We can also assist employers in setting up payroll systems that make voluntary deductions easy to manage.
Understanding Your Pay Stub
Your pay stub is more than just a record of your earnings — it’s a window into your financial picture. Here’s what you’ll typically see:
- Gross Pay: The total amount you earned before deductions.
- Deductions: Taxes, insurance, retirement, and other withholdings.
- Net Pay: The amount you actually take home after deductions.
By reviewing your pay stub regularly, you can catch errors, plan your budget, and stay informed about where your money is going. If you notice anything unusual, it’s a good idea to bring it to your employer’s attention or consult an accounting firm for professional review.
Why Understanding Deductions Matters
Knowing what’s deducted from your paycheck isn’t just about curiosity — it’s about financial awareness. When you understand your deductions, you can:
- Plan better for taxes and savings
- Maximize benefits and retirement contributions
- Identify possible payroll errors
- Make informed decisions about your employment and finances
Our accounting firm in El Paso believes that financial education is one of the most powerful tools you can have. Whether you’re an employee trying to understand your pay stub or a business owner managing payroll, professional accounting guidance can help you stay compliant and financially confident.
Accounting Firm in El Paso
Your paycheck tells an important story — one about your hard work, your benefits, and your financial future. By understanding common paycheck deductions like taxes, Social Security, insurance, and retirement contributions, you can take control of your financial well-being.
At Marcus, Fairall, Bristol + CO., PLLC, we’re more than just an accounting firm — we’re your trusted financial partners in El Paso. Whether you need help reviewing your payroll, understanding your deductions, or planning for retirement, our experts are here to guide you every step of the way.
Call us today at (915) 775-1040 to schedule a consultation with a knowledgeable accountant and make sense of your paycheck deductions with confidence.