What fica means
FICA Who? Understand your "Disappearing" Paycheck
By Kathleen Carmichael, Ph. D.
March 13, 2009
As a recent graduate you might find yourself asking, "FICA who?," while trying to understand your disappearing paycheck.
With a job offer in hand and your first paycheck on the way, you may be daydreaming about how you’ll spend your paycheck—on a new work wardrobe, furniture for a new apartment, maybe a better car.
But how much spending money can you really expect from your paycheck? It helps to remember that more than 20 percent of your salary may disappear before you even see the check—and that’s just for taxes. These deductions create the difference between “gross pay” and “net pay”—the amount you have left to spend and save. Moreover, you’ll need to keep in mind additional deductions for health insurance and retirement plans.
In our real-world example, we tracked Mike Smith, an entry-level marketing coordinator. This recent grad’s $25,000 salary gets cut from $481 to $319 per week. So how does that happen? Watch!
Social Security ( FICA ) and Medicare: Deductions for these items will consume about 7.7 percent of your salary—$1,925 of your $25,000 base.
Federal and state taxes: Federal and state tax rates fluctuate, but you can estimate that combined they will take approximately 14 percent of your
paycheck (although some states do not collect state income tax). This means roughly another $3,500 annual deduction.
Health insurance: This will vary widely from company to company. Depending on your company’s plan, your costs may range from monthly paycheck deductions to small prescription and doctor’s visit co-payments (usually in the $10 range).
401K plans: Your company may offer you the opportunity to contribute up to 15 percent of your salary (a maximum of $3,750 from Mike’s $25,000) to an individual retirement plan called a 401K. It’s a good idea to contribute even if you can only set aside a small amount. You’ll save money in taxes, since 401K contributions are tax-deferred (so you don’t pay taxes on the money until you withdraw it at retirement). An added benefit is that many employers will match some part of your contributions.
And check this out: If you contribute $2,000 per year (less than ten percent in Mike’s scenario) to a 401K plan earning six percent annually (a conservative estimate), you will have accumulated at least $300,000 in savings by age 65. Some 401K investment options can earn you even higher returns.
So what does this mean for you in terms of your weekly paycheck? The table below can give you a general idea:
Paycheck breakdown for Mike Smith, Entry-Level Marketing Coordinator :Source: www.fastweb.com