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Paychecks have a way of playing tricks, so it’s worth asking: Do you know your monthly salary after tax and other deductions?

Understanding the difference between your gross earnings and what actually hits your bank account each month is critical for budgeting. And once you know how your paycheck is divvied up, you may choose to make some tweaks.

Many Coffers to Fill

Under the Federal Insurance Contributions Act (FICA), your employer will withhold 7.65 percent of your wages for taxes with each paycheck. Of this percentage, 6.2 percent goes toward Social Security, and 1.45 percent goes toward Medicare. Your employer must contribute an equal amount to the government.

In 2017, you won’t need to contribute money for the Social Security portion after you earn $127,200, but you will pay an additional 0.9 percent in Medicare taxes if you earn over a certain amount. For single individuals, the threshold is $200,000. The extra tax kicks in for married couples filing jointly who earn $250,000 and for separate filers who earn $125,000.

You’re also on the hook for federal taxes, and depending on where you live, possibly state and local taxes as well. Other mandatory deductions can come in the form of wage garnishments, such as for child support payments.

Your paycheck could be shrunk further by voluntary deductions. These may be used to pay premiums for an employer-offered health plan or to contribute to an employer-sponsored retirement account like a 401(k) plan.

Paying Taxes Differently

Many items on your pay stub can be adjusted to increase — or even purposely decrease — your monthly take-home pay.

While the FICA taxes are flat rates that can’t be adjusted, you can modify the amount of federal income tax you withhold each month. As the Internal Revenue Service (IRS) explains, you can indicate on Form W-4 if you want to withhold at the single rate or at the lower married rate, how many withholding allowances you want to claim to reduce the amount withheld and whether you want an additional amount withheld.

This IRS calculator can help you figure out how much federal income tax you should take out of your paycheck to manage the size of your tax refund (or bill).

Finding Good Balances

Reducing voluntary deductions can help you take home more money each month, but it’s important to consider the trade-offs. You may be able to lower your monthly premiums on your health plan, for example, but get a higher deductible in return.

Be careful around the temptation to scale back your retirement contributions, since doing so jeopardizes your nest egg. Plus, these contributions are usually pretax deductions that lower your taxable income. This 401(k) savings calculator can help you determine how much to contribute.

Keeping track of what goes into and comes out of your paycheck can help you understand your personal cashflow and constrain your spending to a healthy amount. Knowledge is power, and understanding your paycheck can be a powerful thing.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

By selecting any external link on, you will leave the KeyBank website and jump to an unaffiliated third party website that may offer a different privacy policy and level of security. The third party is responsible for website content and system availability. KeyBank does not offer, endorse, recommend, or guarantee any product or service available on that entity's website.

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