Your Paycheck – After-Tax Deductions

Why this should interest you?

It can lower your take home pay!

After-tax deductions are subtractions from your income after taxes are computed, therefore lowering your net income. An example of an after-tax deduction is a contribution to a Roth 401(k) retirement plan or buying into a company sponsored share purchase program (ie, buying the stock of the company you work for automatically each month).

I will use the same example from my before-tax post but change the retirement plan contribution to a share purchasing program. Again assume no other tax except federal withholding, no social security, medicare, state, local, etc.

Joe, a single male, is a video game tester and has a gross income of $2,000/month, this also happens to be his taxable income. In this instance Joe has $238.33* withheld from his pay check each month for federal taxes, leaving him with a net income of $1,761.67 ($2,000-238.33).

Next month Joe’s boss announces the company will begin offering the option to contribute to a share purchase program. Joe decides to take part and contribute $100 a month. His gross income is still $2,000/month which is still his taxable income. Federal tax withholding remains $238.33* but net income has now decreased to $1,661.37 ($1,761.37-$100) prior net income last month less the $100 contribution to the share purchase program.

After-tax deductions as you can see are fairly straight forward.

*Federal tax withholding computed using the federal tax withholding table in the post Federal Tax Withholding. Remember to convert monthly gross income to an annual amount 1st.

Mini Series – Your Paycheck

I have decided to kick off my blog with a mini series focused on your paycheck. The paycheck after all, is how the money you earn enters your life, and it is beneficial to be familiar with how your salary is impacted before the cash you earn finally reaches your pocket.

Why this mini series should interest you?

Say for example last week you loaned your friend $100. Two weeks later he pays you back but only gives you $85. You would want to know why you only got $85 and where the remaining $15 went. This can be directly linked to your paycheck, but instead of loaning money you are giving your time in terms of hours worked. To make the link say you work 8 hours at $10 an hour, but at the end of the day get a check for $71, not quite what you expected, right? Were did the other $9 go? This mini series will help answer that question.

During this mini series I will be touching on various topics such as:

  • Gross Income
  • Net Income
  • Benefits
  • Federal Taxes
  • State Taxes
  • Before and After Tax Deductions

and possibly a few others, if you have a question or specific request related to your paycheck, leave a comment and I will do my best to answer in a future post.