Skip to main content

It's a Money Thing®

Let's Talk Taxes

Paycheck withholdings are a fact of life for most workers, but they aren’t set in stone. While it might seem like the right idea is to accept your withholdings as given and hope for a big refund at tax time, you’re better off taking a more proactive approach. With a closer look at your life situation and a touch of math, you can wind up with more pocket money and better financial well-being.

Learn the Terms

You may have noticed that your pay stub is riddled with abbreviations. The first hurdle to get over when it comes to understanding your withholdings is to be clear on the terms.

  • FT or FWT: Federal Taxes or Federal Tax Withheld
  • ST or SWT: State Taxes or State Tax Withheld
  • FICA: Federal Insurance Contributions Act
  • MED: Medicare
  • SS: Social Security
  • YTD: Year-to-Date

Depending on your profession and your location, you may find other abbreviations to indicate further paycheck withholdings. You can always look them up yourself, but the surest bet is often to contact your company’s HR department and find out from the source.

Let's Talk Taxes: It's important to familiarize yourself with the abbreviations used on your paychecks.


Let's Talk Taxes: Net Pay is what's left of your earnings after withholdings and deductions have been made.


Manage the Math

If you want to get your withholdings right, you’ve got to crunch the numbers. Luckily, there are numerous online withholding calculators that you can use to make the process quick and easy.

Start from your gross pay, the total amount you earn before withholdings, then, using the figures from recent tax returns and pay stubs, you can calculate your estimated yearly income as well as the resulting withholdings, and then optimize your earnings.

You'll also want to account for any voluntary deductions. These are deductions your opt into, like retirement savings contributions.

The resulting number is know as your net pay. Net pay is your take-home pay- what's left of your earning after withholdings and deductions have been made. 


Know your Withholding Allowances

The key to maximizing your take-home pay is to take full advantage of withholding allowances. Tax allowances are factored in when your employer calculates how much federal income tax to withhold from your pay. The more allowances you claim, the less money is withheld from each paycheck.

Using a W-4 form, you can claim a variety of allowances depending on your marital status, number of dependents, property taxes, federal student loans, child care and more.

Typically, your employer will give you a W-4 form to fill out at the beginning of your employment, and sometimes each year thereafter. You should make sure any pertinent changes are reflected on an ongoing basis. You can always fill out a new W-4 form yourself when your personal financial situation changes in a way that impacts your tax allowances.


Let's Talk Taxes: Withholdings are mandatory deductions from your paycheck, while deductions are items that you opt into like retirements.

Annually, you prepare your taxes based on what was withheld from your paychecks, send them off and wait, hoping for as many dollars as possible to come back your way. Although having a special yearly bonus can be enticing, it pays to remember that every dollar was yours in the first place. You work hard to earn what you make, so why wait a whole year to reap the rewards?

When you get a tax refund, that just means that the government has withheld too much of your pay, and is giving it back. You’ve essentially provided the government with an interest-free loan. 

You can make better use of that money month to month, when it’s properly invested, saved up for a rainy day or spent on purchases that help with your everyday needs. Plus, that way you can rest assured that you’re making the most of your income. Just imagine if your refund could be earning interest for you all year long, or just making your life better every day instead of showing up once in your bank account and likely disappearing quickly.

Share on Social Media: