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Who Owns Your Paycheck?

It sounds like a silly question. “Who owns your paycheck?” Well, you do of course! Don’t you? I’m not so convinced….

Who Owns Your Paycheck?

We all work hard. We wake up before the sun, drag ourselves to the office, expel all of our brain power, and then come home defeated, day in and day out. All for that glorious paycheck. Only…it’s not nearly as good as we think it is.

Let’s say you have a household income of $90,000. Pretty good! Especially considering that the median household income is just $53,657. But how much of that money is actually making its way into your pocket?

1) The Government’s Sticky Fingers

Income tax, as we know it today, began in 1913. The government could no longer sustain itself and began mandating a tax on each individual’s income. In 1943, the Current Tax Payment Act took it one step further and allowed the government to actually take our money before we even saw it! This phenomenon still continues today and is simply a “Federal Income Tax” deduction line on each of our pay statements.

Of your $90,000 salary salary, how much does the government claim? Well, let’s take a look…

who owns your paycheck - governmentIncome Tax – $18,000

As you can see on the right side of the page, the government taxes individuals based on the size of their earnings. If you earn little, you are taxed at a low percentage. Earn a ton, and you get taxed at a much higher rate.

With a salary of $90,000, the government has deemed it fair to take approximately 20% of your money, or roughly $18,000.

State Income Tax – $3,825

Of course we can’t just get taxed at a federal level (because $18,000 of our hard-earned money isn’t enough…?) – we need to be taxed at a state level as well. In the great state of Michigan, we get taxed at a rate of 4.25%. If you live in Pennsylvania, you’ll get taxed at 3.07%. If you live in Utah, it’s 5.0%.

Related: State Income Tax Tables – 2016

Using the Michigan rates, another $3,825 is removed from your dwindling paycheck.

Social Security Tax – $5,580

Even though many of us will never benefit from this tax EVER, we’re still required to fork out 6.2% from every paycheck to fund the elderly that decided never to save for their own retirement… I’m not at all bitter about this…can you tell?

Each year, a $90,000 income will be stymied by $5,580.

Medicare Tax – $1,305

The government isn’t quite done taking money out of your pocket yet! They still have one more trick up their sleeve – Medicare Tax. This tax helps provide medical care for the elderly. While I’m definitely not in love with those Washington Fat Cats taking my money, this one isn’t quire as bad.

On a $90,000 income, $1,305 goes to the Medicare Tax each year.

The government has successfully taken $28,710 of your hard-earned $90,000. You now have $61,290.

So who owns your paycheck now? Who benefits from that remaining $61,290? You do right?? Ummm…nope. Not yet.

2) Your Own Stupidity

The title might be a little harsh, but it’s not inaccurate. Because of your own stupidity, you are not the beneficiary of the remainder of your paycheck!

Mainly due to our “gotta have it now” society, many of us have decided to buy things that we can’t afford with a promise to pay it back over time. In other words, we have willingly agreed to make years of payments to experience something that we probably didn’t really need today.

who owns your paycheck - the bank car loanThe Bank – Car Loan – $6,036

The average auto loan in America today is $30,000, which results in an average payment of $503 a month, or $6,036 a year. Is this necessary?

Not. At. All.

If the average American can make the $3,000 down-payment to buy the new car, then they officially have enough to buy a decent used car that could last them many years. Due to their own stupidity, they no longer own $6,036 of their paycheck. The bank does.

Sallie Mae – Student Loans – $4,000

Kids can’t possibly go to school without loans these day, right? That’s one of the biggest lies floating around right now. It is STILL POSSIBLE TO GET THROUGH SCHOOL WITHOUT ANY DEBT. You just have to plan and be intentional about how to do it. Since no one is intentional with anything these days, it therefore becomes impossible…due to poor planning.

The average student loan amount for a graduating senior last year was $35,000, resulting in monthly payments of $333, and yearly payments of $4,000.

MasterCard and Visa – Credit Card Debt – $1,440

How does the average American pay for emergencies these days? Since they have no money in savings, they pay for emergencies with a – yup you guessed it – credit card! Thanks to non-planning, the typical American has $4,750 in credit card debt, which equates to $120 a month in minimum payments.

If you simply pay the minimum (which I would never recommend by the way), you would owe the credit card company $1,440 a year for a very long time… (it might cause you shortness of breath, but the staggering number is actually 25 years – scary huh??).

You had $61,290 left of your paycheck after the government swiped their share. Now, after your $11,476 of stupidity, you have just $49,814.

3) Regular Life

Who owns your paycheck? The government, the local bank, and Visa definitely have their hands on it, but who else takes a cut? Unfortunately, your paycheck isn’t yours yet. We still need to fund your survival on this planet! You know, things like food, shelter, water, clothing…

The Bank – Your Home Mortgage – $12,876

Americans like everything BIG, including their homes. The average home size in America is growing with each year…and so are the mortgages. According to The Motley Fool, the average mortgage payment for a 35-44 year old is $1,073 per month, or $12,876 each year. Ouch.

who owns your paycheck - your mortgage

Costco – Food – $9,600

According to USA today, the average cost to feed a family of four is $800 a month, which takes $9,600 out of your paycheck each year.

The Mall – Clothing – $1,700

In 2010, the Bureau of Labor Statistics found that the average family spent $1,700 a year on clothing. It’s honestly not as bad as I thought it would be, but that’s still $1,700 a year that you’ll never see again! Well…unless you’re looking in a mirror I guess… 😉

Verizon – Your Smartphone – $2,000

Ohhh Smartphones… You’re so fun, but you’re so freakin’ expensive!! The typical cell phone costs $200 if you sign up for a contract plan. Then, add on the average service plan of $150 a month for a family and you’re at roughly $2,000 a year! All so we can call our friends take a Snapchat of what we ate for dinner…

Comcast – Cable/Internet – $2,400

Cable isn’t a necessity, but it seems like almost everyone still has it… Add internet to the mix and the typical family forks out $200 a month, or $2,400 a year!

Utilities – $3,000

In Michigan, we have to run the A/C in the summer and the heat in the winter, so our utility bills are pretty steady from season to season – somewhere around $250 a month, which includes water and trash pickup. Per year, this tears another $3,000 from our hard-earned paychecks.

Car Insurance/Fuel – $3,015

A car is a necessary evil for a lot of people, which means that car insurance and fuel are too! According to The Simple Dollar, the average car insurance cost per year is $815.

The average cost of fuel each year….approximately $2,200. Sheesh! Who owns your paycheck? Your car is getting a hefty chunk of it!

After the government and your stupidity, you still had $49,814. Not bad. But then you had to pay for your real life… The mortgage, food, clothes, your phone, cable, utilities, and car related stuff cost you another…. $34,591.

Of your $90,000 paycheck, you own a whopping $15,223. Oh, and don’t forget, you still need to save up for your retirement each year too. So who owns your paycheck? Here’s the horrifying visual:

who owns your paycheck - pie chart

The sad reality is the typical American owns approximately 17% of their paycheck.

What Can You Do About It?

It might seem like we’re all stuck paying “the man” with taxes, paying the bank for our homes, and shelling out monthly cash for our car loans. But the truth is, we actually have a choice to stop paying many of these bills! No, you don’t need to live off the grid and learn about solar energy and poop bags…(is that the technical term?). You just need to start paying attention! Who owns your paycheck?!

About two years ago, I waged war on all of my expenses and today I live on less than half of what I was spending then. If you’re like many Americans today, wondering who owns your paycheck, and you actually want it to be you (crazy thought, huh??), then I would highly suggest the quality reads below. Take back your life and learn how to keep your hands on your paycheck!!

  1. Legitimate Ways to Reduce Your Tax Bill – by BankRate
  2. House Hopping is Keeping You Broke – Life And My Finances
  3. Six Benefits of Buying a Slightly Used Car for Cheap – by Money Crashers
  4. Top 10 Tips for College Students – by Life And My Finances
  5. How to Feed a Family for Less Than $400 a Month – by Life And My Finances
  6. Ten Extreme Tips to Cut Your Spending in Half – by Life And My Finances

Battle of the Mind Money


My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. It’s pretty eye opening when you take a step back and really look at the bigger numbers, and not just at your overall paycheck.

    • It’s pretty easy to see how many people end up with nothing each month. The good news is if you work for it and get rid of all your debts, you can actually save 50% of that paycheck!

  2. Good post. When people realize how much homwownership is truly costing them, they will understand how the Bank and associated entities really control their life. You should add at least 10-20% more to mortgage to cover associated costs of homeownership like insurance, property taxes and maintenance, not even including the periodic upgrades. Getting a relief from this item and taxes (from effective tax planning) frees up so much money that can accelerate a person’s journey to Financial Independence. That’s the 10! way as I call it on my website.

    • Hi TFR. Home ownership is quite costly. People love huge homes, but that just puts them hugely in debt, with huge maintenance expenses, and huge tax bills. If we all just learned to be content in our average-sized homes, we would all be so much happier!

  3. What you’ve illustrated to me, Derek, is how increasing income can be quite powerful, provided the living expenses remain constant.

    The government’s blue pie piece will grow some, but not as quickly as the yellow
    You” piece. And that’s the slice that matters most.


    • You got it PoF! Well put!

  4. Congrats, Derek, on getting picked up by Rockstar Finance today – great article, and worthy of the recognition! Great way to show the impact of stupid spending decisions!

    • Thanks! So many people are getting duped into thinking a car loan is smart or a school loan is smart… You know what’s smarter? Doing without them!

  5. This is really eye opening and something that everyone should understand about their paycheck. As PoF pointed out, increasing income really can increase your slice of your paycheck.

    And of course, cutting out some of the expenses like student loans can really help you get back that paycheck. I think that’s one factor that folks don’t consider as much when thinking about the invest or pay back debt debate.

    • Right. Our pie is already small enough after the government takes their cut. And then we have to make it even smaller by borrowing on our house, our car, student loans, and credit cards! It’s pretty easy to see how some people end up with nothing at the end of each month.

  6. When you put it that way, it’s pretty depressing what we do to ourselves! I wonder what’s the best way to get motivated to make positive (net worth) changes after such a sobering realization. We are trying to make small changes and celebrate every step out of debt. 1.58% down!

    • So many people really put themselves into a hopeless situation this way.

      Great job tackling your debt! Sell everything you can, save up a $1,000 emergency fund, and then tackle your debt smallest to largest. Any payment you get rid of, put it toward the next debt. This can really get things moving!

      Let me know if you have any questions! Every Sunday I answer people’s questions about money. I’d love to hear from you!

  7. Wow!
    Can’t believe such tax rates in the States. Unbelievable.

    • Where are you from Sikasem? And what are your tax rates? Maybe it’s time for us to move! 😉

  8. Good article! I would love to see the median expences as well, as I suspect these will differ from the average ones and probably be more representative for the ordinary man/woman?

    • From what I’ve seen, the median is typically a little lower than the average (because some people just spend insane amounts on these categories), but the message is still the same. Stop spending money on stupid crap. Save some. And you might actually be happier than you are now. You know….since you’re broke. Don’t you agree?

  9. Sticky fingers indeed – not that I begrudge sending money to the government to provide services for myself and others. Very sticky actually.
    Honestly it’s a bit scary when you punch in median numbers for the US and see how much people are spending on internet or on their cell phones — so much room to trim across the board. Let’s get the word out!

    • Yeah! If only people took five minutes to understand this stuff! They’d spend so much differently than they do today! Don’t you think?

  10. Great way to get some perspective on your expenses I think. If we each made our goal to expand that “You” piece of your pie, wouldn’t be a bad way to improve our financial situation over time. Next might be helpful to divide that “You” between “today’s you” and “future you,” with future you of course meaning savings!

    • It’d be a great visual to have on the fridge don’t you think? How big was my “You” slice this month and what’s my goal for this slice in the future? How will I get there? (Hint: Get rid of debts!!)

  11. Ack, it can be so depressing to see where your money ends up! While we can’t always do much about the taxes we pay, we can sure as hell change the amount of debt and expenses we subject ourselves to.

    Mr. Picky Pincher and I overhauled our finances over a year ago and today we save 50% of our take home pay. We were your average spendy DINKs–no surprise inheritance or lottery winnings helped us out. It was just cutting our expenses, plain and simple.

    • Nice work MPP! Doesn’t it feel great to live on far less than your take-home pay? Liz and I were just at the doctor’s for Addi – we overheard the woman in front of us asking, “Is it okay if I wait until next Friday to pay this? That’s when I get paid.” What a terrible way to live!!

  12. Derek, the article, in my view, is really misleading. The tax situation presented in the article is the worst case scenario for an “uneducated” taxpayer. A family of 4 with a household income of USD 90,000 which has 2 kids and a mortgage will never pay USD 18,000 in federal taxes.

    • Who said anything about a family of four? This calc is based on an individual earning $90k (as is stated in the text). Based on the tax tables, an individual earning $90,000 will actually need to pay $18,271.25. I rounded that DOWN to $18k.

      Even if you had $2,000 in deductions, the message is still the same Gary. Our paycheck is not ours. Only a small portion of it is. And if we’re not smart, soon none of it will be. I think you missed this major point in the article. Perhaps you should read it again.

      • Even if it based on an individual earning USD 90,000 – you will not pay USD 18,000 in federal tax with some very basic tax planning. Again:

        USD 90,000 – USD 18,000 (401K) – USD 5,000 (IRA) – USD 6,300 (SD) – USD 4,000 (PERSONAL EXEMPTION) , the taxable income is USD 56,700. This = USD 9,945 in federal tax – this is very high, but is already much lower than your original USD 18,000. And this does not involve any tax planning, itemisation, etc.

      • Maybe I don’t want to move to Canada… That was my back-up plan pending the results of this upcoming election. 😉

  13. Yes! A lot of people spend money like it’s infinite. If they had some self-control, they would have more control over their finances. More people need to start weighing consequences before purchases. Example: “Would this $100 pair of shoes really get used enough to justify the price, or would my $100 be better put somewhere else.”

    • I feel like people are the absolute worst with student loans! They just assume that they need student loans to get a degree so they let them pile up without even taking any action on them while they’re in school. Work, people! Cash flow that education! You’ll probably learn more from the grind than you did by putting your nose in the book anyway!

  14. Good article, however, it just highlights the overarching fact that people choose to live above their means rather than living within boundaries until they’ve truly “made it.” We live in a culture where wanting everything now and hoping I can pay for it later is the norm rather than working hard, living a modest lifestyle, and enjoying life debt free with a huge house, nice car, etc. (if you so choose) later is just not acceptable. It’s actually really sad and I appreciate when articles like this highlight how backwards things are these days.

    • Thanks for dropping in JDE. It’s really crazy what “normal” has become. When I tell someone that I’m debt free and own my home free and clear, they look at me like I’m from outer space. It’s like everyone just assumes that it’s not possible, so they don’t even consider it an option. When did we all become so dense??

  15. Taxes for the self-employed are a lot higher. Many self employed are paying more than 30% of their income in taxes.

    If you do work for someone else, there is money that we never see in our paychecks because hidden taxes such as social security match, unemployment insurance, workers comp, payroll compliance costs etc.

    When I had employees, they easily cost me 50-60% over their wage amount. A $20/hour employee actually cost me >$30/hour.

    Without these burdens I could have lowered my costs to the customers (had more business and hired more people), raised their wages, or done a combination of both.

    • True! And honestly, employees are probably even more expensive today because of the huge spike in health insurance costs! Crazy…

  16. Interesting perspective. Can’t help but notice the omission of healthcare expenses. Seems to me like that should absolutely be included here. For most people, that will be another significant piece of their paycheck.

    • Good point Freedom 40. There’s not always a whole lot you can do about it, but it ABSOLUTELY robs your paycheck. My employer contributes $1,000 into an HSA account if we choose the consumer driven plan. It’s worked great for me in the last 3-4 years since we get that money, PLUS it’s a cheap monthly rate. I plan to hang onto it for a while!

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