If you are starting your first job (or a new one) in 2025, congratulations. It’s a milestone worth celebrating, especially if it’s your first job ever or even an entry level position that serves as a starting point for a career. When the time comes to get your first paycheck, knowing the financial terms on your paystub will be vital. We will go over the following terms in this guide down below.
Once you know these terms and their purpose, you’ll have a much clearer understanding of what your paystub tells you and more. Let’s get started with the following.
1) YTD (Year-To-Date) Totals
Knowing the YTD meaning paycheck term will be important. The reason is that it happens to be one of the most overlooked parts. This is how much total money you have earned or deducted from the start of the calendar year up to the most recent paycheck.
It’s crucial when you are keeping track of how much total money you’ve earned especially when it comes time to file for your taxes (whether it’s for income you’ve earned part-time or as a summer job).
2) Gross Pay vs. Net Pay
These two terms differ from one another and it is important to know the obvious distinctions. With that said, here’s a look at the definition of both of them:
- Gross pay: This is the total amount of money you earn before deductions. What is included is your salary or wages, bonuses, overtime, or any other compensation you receive.
- Net pay: Also known as “take home pay”, this is the amount of money after the deductions have been subtracted from your gross pay.
While your net pay is the final amount that you receive, it may seem like it doesn’t seem right for it to be much less than gross pay. Rest assured, you’ll know exactly why such deductions are taken out and where that money goes.
3) Federal and State Tax Withholding
As you start your new job, you will be required to fill out a W-4 form. This will inform your employer regarding how much federal income tax you wish to withhold from your paycheck. Bear in mind that depending where you live and work, state tax withholding may apply.
While not all states in the United States will have an income tax, you will still have a withholding of federal taxes. Obviously, taxes will be used to fund programs both at the state and federal levels. If you claim more allowances on your W-4, there will be less tax withholdings. However, it can also mean being subjected to a lesser refund during tax season.
4) Social Security and Medicare (FICA Taxes)
The Federal Insurance Contributions Act (FICA) is a tax that funds Social Security and Medicare. Social Security will deduct 6.2 percent of your wages up to an annual limit. This will be for any retirement benefits, disability, and survivor benefits.
Meanwhile, Medicare will account for a 1.45 percent deduction of your wages that will fund healthcare for those aged 65 years and older as well as those with long-term disabilities.
FICA contributions are matched by your employer. As such, you will pay 7.65 percent and so will they on your behalf.
5) Health Insurance and Retirement Contributions
Deductions for optional benefits like health insurance and retirement are also available. This is used for when you opt into the health insurance plan provided by your employer along with any 401(k) contributions. In terms of the latter, an employer could offer matching contributions up to a specific percentage, meaning you get more for your future even if it’s free money.
6) Other Common Deductions and Contributions
Finally, it may be ideal to consider what other common deductions and contributions that may exist on your pay stub. These include Employee Stock Purchase Plans (ESPP), allowing you to purchase company stock at a discounted price. Union dues and even garnishments could be used as deductions from your paycheck.
Final Thoughts
These financial terms should be worth knowing whenever you have a job and receive a paycheck. By understanding them, you’ll have a good idea of what you can get out of your paycheck every single time you get paid.
It might also help whenever you need to make financial plans ahead of time and need a good estimate of how much you are getting paid - be it weekly or bi-weekly.
