Tips & Resources

What’s in Your Wallet?

The advertisement sounds enticing: an identified hourly wage or annual salary. Your eyes light up, your hands rub together in anticipation, and you envision all the good that new income will do for you. Especially if you’re new to employment, that first paycheck comes fraught with disappointment and the depressing realization that what you put in your wallet does not match the amount quoted.

Basic categories of salary

The Internal Revenue Service defines income into two basic categories: taxable and nontaxable. Most types of income are taxable, but the IRS does exempt a short list of income types that aren’t:

  • Child support payments
  • Gifts, bequests, qualified scholarships, and inheritances
  • Welfare benefits
  • Damage awards for physical injury or illness
  • Cash rebates from dealers/manufacturers for items purchased
  • Reimbursements for qualified adoption expenses.

Unless legally excluded, all income falls under the category of taxable, including non-cash income acquired through barter and equity-based compensation. Employee benefits that a company may use to attract and retain labor (such as relocation assistance, long term care life insurance plans, transportation benefits, etc.) and perks (discretionary benefits such as take-home vehicles and paid parking that companies often give to employees who are star performers or have significant seniority) may be excluded from an employee’s taxable income in your state. Confer with a tax accountant to be sure.

Upon receiving payment of wages from your employer and realizing that the generous amount you anticipated receiving isn’t so generous, take a moment to review the elements of the check stub. The stub shows why the amount promised doesn’t go into your pocket.

Check stub components

The top of your check stub includes basic information such as your name, the name and address of your employer, and the date of issue. If your company uses a third party to process payroll, that information should also be present. The top of the stub likely also includes the check number. Look for a block labeled “gross pay.” This is your payment of wages sans deductions over the pay period as determined by your employer. The block labeled “net pay” shows the amount that you actually received. Next comes the part where you see all those deductions that explain the difference between gross pay and net pay.

  • Federal tax withheld depends upon the exemptions you claimed when you filled out the IRS Form W-4. The more exemptions, the lower the amount claimed in federal withholding. These comprise your share of the taxes that keep the nation’s government and government-funded programs in operation. Your federal taxes support national parks, the five branches of the nation’s military, and interstate highway construction and maintenance, among other public benefits and services. You can change the amount of exemptions claimed at any time by filing a new W-4 form. See your employer’s human resources department for more information.
  • State tax withheld is usually listed near the federal tax line. State taxes vary from state to state, with some states not imposing income taxes upon their residents. States use this funding to pay for public projects such as the construction of public buildings and infrastructure, education, and healthcare.
  • FICA, otherwise known as the deduction for social security or SSWT, sends 6.2 percent of your income to a fund that supports retirees and those unable to work due to disability. Employers must also contribute 6.2 percent of your income to this fund.
  • Medicare (MWT), a federally funded program providing healthcare to those eligible for social security, claims 1.45 percent of your salary. Your employer must match that amount in payment, too.
  • Municipal taxes may also be deducted from your wages. Many cities impose income taxes upon residents who work but do not live in within the corporation limits of the municipalities. Funds claimed by municipal taxes pay for road and street improvements, fire and law enforcement services, utilities, city administration, and more.

Additional deductions may also claim portions of your pay, such as insurance policies, retirement plans, time off, union dues, health savings accounts, flexible spending accounts, employee stock ownership plans, and other local tax levies.

Average salaries in your field

It’s said that a woman filing jointly with her husband often loses a solid one-third of her income to taxes, because she is taxed at her husband’s tax bracket. This, of course, assumes that her husband earns more than she. For mothers working part-time in an effort to balance job and family obligations, that assumption usually holds true. Therefore, it behooves the working mother to know what to expect in wages as much as what to expect in her paycheck after being hired.

Salaries not based on commission tend to rise and fall with the academic and professional criteria demanded for competence and the demand for qualified workers. For instance, one reasonably expects a part-time physician with eight or more years of post-secondary education and two to four years of internship and residency work to command a higher salary than a part-time cashier at the local grocery store which need not even require a high school diploma. Both jobs have value, but one requires considerably more specialized education, licensing, and other criteria for qualification.

Any job hunter can research average salaries by nation, state, age, and profession. The U.S. Department of Labor Bureau of Labor Statistics publishes a report calculating data collected from employers in all industry sectors throughout the USA. It tracks major occupational groups—white collar, pink collar, and blue collar—to calculate average salaries. Be aware that average salary calculations may be strongly influenced by outliers at the high or low ends of the wage scale. allows for in-depth career research into salary data for specific jobs, employers, schools, and degrees. The search engine then parses data by years of experience in that career or field and the location, because location matters. Areas with a high cost of living usually show higher gross salaries which may not translate into a more affluent lifestyle. IndeedGlassdoorCareer One Stop, and also offer salary range information pertinent to career field and location. Some professional associations may also provide this information.

Know your worth

Before applying for a job or agreeing to a job offer, know what you should earn in that position. This knowledge not only helps you determine how much the company values the work you do, but also informs you as to where there’s room for advancement. If you start the job at the top of the pay scale, then don’t expect much in the way of annual salary increases. If you start the job at the low end, then consider whether you have the experience, education, and/or skill to justify demanding a higher wage or whether the company devalues the work entailed in that position.

Salary comparisons may help in determining a career path within a particular career field and even whether going into business for yourself might be more lucrative overall than working as an employee. For instance, a barista in a coffee shop may command only minimum wage, but the shop’s owner likely commands a much higher wage.

Online services help job candidates discover their current worth in the job market and learn whether their employers pay fair compensation. Glassdoor,, DiceJob Search Intelligence, and other similar platforms offer fast, current market information. Compare the information these online services provide to arrive at a realistic determination of the salary you should earn. Armed with this information and an understanding of the value of other benefits and perks offered by the company, you have a greater likelihood of persuading a hiring manager to increase a lowballed job offer.

Put more in your wallet

Increasing what goes into your wallet means increasing your gross salary and reducing your taxable income. A two-pronged effort on putting more money in your pocket can realize a significant increase and improved standard of living. The Motley Fool and Kiplinger both offer feasible suggestions to assist in cutting the tax bill down to size. They range from boosting retirement savings to reducing withholding on your W-4. 

Other options include employer-paid (either outright or through reimbursement) training or education, which will then make you more valuable as an employee to your employer and other companies. Be aware that many employers which offer tuition reimbursement or similar programs require the employees who take advantage of their investment to remain with the company for a certain period of time to allow the employer to recoup their investment. 

Finally, ask your boss for a raise and justify the request with information acquired from authoritative sources. Nothing ventured, nothing gained.