When you get paid, understanding your paycheck is very important. Here are 10 easy ways to read your pay stub.
Did you know that around 64 million people get confused by their paycheck? If you’re one of them, we can help.
Are you looking for tips on reading your pay stub? Not to worry! In this guide, we’ll go over how to reading your pay stub. Understanding your paycheck will help you catch any errors in future pay stubs.
Want to learn more? Keep reading to find out.
- What Is Gross Pay?
The gross pay you make is the total amount of money you get before deductions or taxes get taken out.
This will include your salary or pay by the hour, as well as bonuses or overtime pay. If you worked 20 hours and you earn $20 an hour, your gross pay’s $400.
This section will include your gross pay for that pay period but also the year to date. On your pay stub, you’ll see this written as YTD.
- Federal Income Taxes
The federal government will receive a percentage of income earned by every citizen. Your boss will take into consideration your dependents and your income. With this information, they will work on estimating your federal tax liability.
The amount will get divided by the number of pay periods from the year. This amount gets deducted from your pay for federal withholding tax.
If the amount held was over your federal tax liability, you will get a refund. You would owe taxes to the IRS if the amount were less than your federal tax liability.
- What About State Taxes?
Depending on your state, you might need to pay a state income tax. Money for your state taxes will get held from every paycheck like federal taxes. You’ll see it show up on a separate line as a deduction.
- Federal Insurance Contributions Act
Everyone who works has to contribute to Medicare and Social Security funds. The Federal Insurance Contribution outlines why people have to do this.
That’s why you have a deduction on your paycheck stub for these federal programs. Some paycheck stubs will even break down the deductions. You will see how much you’re paying for both.
6.2 percent of the worker’s gross income will go into the Social Security fund. Your employer will also provide another 6.2 percent. This fund will offer benefits to Social Security recipients.
Are you self-employed? If you are, you’ll have to pay both the employer and work portions of this tax.
Every working American also has to contribute to Medicare. Workers must give 1.45 percent of their gross income to Medicare. Your employer will pay 1.45 percent as well. If you’re self-employed, you’ll have to pay 2.9 percent.
- Insurance Deductions
Have you signed up for life, dental, or medical insurance with your employer? If so, you will see the deductions for each one on your paycheck stub.
Your employer might end up paying part of it, and you have to pay the rest. This will get taken out of your pay before the taxes get calculated. This means you won’t have to pay taxes on the deductions.
- Do You Have A Flexible Spending Account?
With a flexible spending plan, set aside pre-tax dollars for prescription drugs. You can also pay for deductibles and copayments.
Contributions to a flexible spending account get deducted from your pre-tax income. You can reduce your taxes by using an FSA.
- What About A Health Savings Account?
Set aside pre-tax money in an account for medical expenses with a health savings account. Select a high-deductible health insurance plan.
By getting this plan, you will become eligible for a health savings account. Any contributions to this account will get deducted from your pre-tax income.
- Do You Have A Retirement Savings Plan?
Contributing to a retirement savings plan like an IRA or a 401K will get deducted from your pay.
If you sign up for a 401K plan, you choose a percentage of your pre-tax salary. You will add this to your retirement account.
Set up an account so you can save on tax payments and put money away for your future.
- What’s Your Net Pay?
This is the number most people check when they get their pay stub. The net pay is your gross pay after all the deductions.
You can track how much money you’re taking home after taxes and deductions throughout the year.
You can also see how much you’re making each pay period. Use this information to start making a plan to save for your future and get rid of debt.
Try to budget your money each month, and set aside a small percent for savings.
- Track Your Deductions
Make sure you’re tracking your paycheck. You want to report any errors you see on your paycheck to your human resources department.
Find out if your employer’s taking out the right amount of taxes. If they don’t, you will owe more money during tax season.
Take a look at the information on your last pay stub. Make sure the information matches what’s on your W-2 form. A W-2 form will outline what salary and taxes you paid for the year.
You use this to complete your income tax returns. If you’re self-employed, consider using a pay stub maker.
Understanding Your Paycheck
We hope you found this guide on reading your pay stub helpful. Understanding your paycheck will help you spot any errors. Report any issues to your human resources department right away.
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