Paycheck Deductions got you down?

We all look forward to receiving our paycheck. We can calculate from the number of hours we worked or our salaried amount how much we'll get paid. But, when the check comes, the amount on the bottom line is always less than anticipated. Then we see a list of abbreviations off to the side for deductions made to our gross pay. Exactly what do those abbreviations mean for all those amounts that are taken right off the top of our hard-earned money?

Well, let's start with Social Security. There has long been debate about the need or fairness of this one. Younger employees argue that they shouldn't be taxed for it since the system will probably have run dry by the time they reach retirement age. Thus, they'll never see a penny of it in return. While this may or may not be true, it is nevertheless an employer's obligation to pay into the nation's Social Security fund. Each employer pays a certain percentage into the Old Age, Survivors and Disability Insurance (OASDI) and the employee is taxed for the rest. It's required by law for them to do so. Self-employed individuals are also required to pay 12.4 percent of their income into this fund since they're considered both employer and employee for their enterprise.

'FUTA' is an acronym for the Federal Unemployment Tax Act. This system, in combination with state programs, provides money for people when they are unemployed and looking for work. Employers are required to pay into this fund for their employees. They are responsible for paying 6.2 percent of the first $7,000 of taxable wages for each employee (employees pay nothing toward this fund). Companies are rewarded for this contribution with a deduction on their taxes. They can claim a deduction equal to their state contribution to FUTA. In addition, they can also claim a deduction equal to the difference between what they paid at 6.2 percent and what they would have paid if the state rate was 5.4 percent.

Income tax is the amount of money assessed you by the IRS against your taxable income. The government taxes your earnings at a certain rate. One determining factor for this rate is the filing status of the individual. There are five statuses: Single, Married Filing Separately, Married Filing Jointly, Qualified Widow with Dependent, and Head of Household. The "Single" and "Married Filing Separately" categories are taxed at the highest rate.

Medicare tax goes toward Hospital Insurance, or HI. Employers are required to pay a 1.45 percent of the Medicare tax for their employees. If you're self-employed, the rate you'll be assessed is 2.9 percent. Medicare is a federally-funded program that provides medical-expense coverage to older Americans.

Even though some argue that Social Security will be all used up, there are still the Medicare benefits and unemployment funds that could very well come in handy should you find yourself laid off of your job or living to a ripe old age. Each tax serves a desirable purpose that benefits many, many taxpayers.