In addition to the amount of income an individual has earned, a pay stub contains information about withholdings, such as federal taxes, state taxes, or Medicare.
Explanation:
The amount of money withheld per pay period, typically due to federal or state taxes, varies from person to person. A pay stub usually reflects the amount of a person’s salary, the duration of payment, as well as deductions, or withholdings. A withholding is a sum of money deducted from the total payment an individual receives every month. Usually, a withholding refers to tax deductions, insurance payments, a savings plan, or other deductions for services, which were arranged by the employee himself.
Federal and state withholdings can vary depending on specific criteria, and some individuals may even be exempted from paying them. Federal income tax withholdings have a progressive system, meaning that the more a person earns, the higher the percentage of the withholding. Some circumstances exist in which an employee’s income is not subjected to federal taxes. The level of state taxation is determined by state law and depends on factors like taxable income amount, marital status, or allowances received by the employee.
Other withholdings use a fixed percentage, including the Medicare tax and Social Security tax. The amount is fixed at 1.5% of an employee’s annual income, and the employer is responsible for paying this amount. As the name suggests, these deductions can be helpful in paying for hospital bills, doctors’ fees, or nursing care for the disabled or elderly.
Social Security tax is withheld at a higher percentage of 6.2%, but only the first $132,900 are subjected to this tax, as of the year 2019.
Here is the table depicting how this amount has changed in the past eight years:
These maximum amounts are decided by the Social Security Administration. However, this percentage represents one half of the tax; the other is paid by the employer. Deductions from the Social Security tax are paid to a specific trust fund and can be used for paying retirement and disability benefits.