It’s something that you’re handed once a week and yet, many people all across the country don’t seem to understand it. What could we be talking about? An employee paystub.
That’s right: you’re probably familiar with the sight of a paystub and the good news that it brings. Payday! However, there’s information outlined on a paystub that can be hugely helpful in understanding your own personal financial situation. Many people don’t take the time to learn how to read this information.
What information is present and how can it help you to understand where your wages go? How best can you use this information to plan your financial situation out? Read on and we’ll walk you through everything that you need to know.
Let’s start with the basics, as they say. The information on your paystub that you likely skim right over is the list of things you’re already familiar with: your name, for one. Paystubs might also have your address, your date of birth, or even your social security number printed on them.
This is all worth noting for more than one reason, however. There’s a lot of important personal information that ends up on a paystub, as you can tell. That means it’s the last thing you would want to fall into the wrong hands.
It’s easy for someone who gets their hand on your paystub to end up stealing your identity. Most of the information they would need to do so is right there!
It’s a good reminder to keep your paystub close and not allow it to get lost and end up in the hands of some stranger. If you’re going to dispose of your paystub, it might be a good idea to shred it instead of just tossing it lightly in the nearest trash can.
Your Gross Pay
The number that your eye likely immediately goes to when you pick up your paystub is the gross pay. Why? Because it’s the highest number listen on your paystub.
Gross pay is the total amount of money you made for this pay period before any withholdings or deductions occur. This number is made up of your hourly pay in addition to any overtime or bonuses you worked.
It’s easy to do the math on your gross pay and you’ve likely done it all the time on your own. If you get paid $10 an hour and you work 20 hours, that would be $200.
There’s a possibility that your paystub also includes a section for your YTD gross pay. This would be the combination of pay over all your various paychecks from January 1st onward. This way, you can see how much money you’ve made over the course of the year.
Taxes Taken Out
Now, it’s time to whittle that number down just a little bit. Many of the other sections on your paystub have to do with the thing we all like to gripe and argue about: taxes.
The taxes section on a paystub can be confusing because there are so many different kinds of taxes that are taken out. Paystubs break down each of the separate varieties of taxes and indicate how much money was given to each one.
First, you’ll see the amount that was taken out and given to the federal government. This is your federal income tax. How much is taken out will depend a bit on the information that you provided on your W-4.
This is money that goes to the country to provide a variety of public services. Anything from military support to education comes from the federal income tax.
Following that, you’ll likely see a section for state taxes. Some states don’t have an income tax, but many do. This works much in the same fashion as the federal income tax and goes towards the needs of the state.
You’ll see another section labeled FICA, which stands for the Federal Insurance Contributions Act. This is money that is taken out and put towards programs like Social Security and Medicaid. Every employee contributes to these funds, with the idea that we can all access them later in life when we’re no longer healthy enough to work.
Depending on where you live and work, there might be other deductions listed on your paystub. You can create a paystub and play around with the options to see all the other possible deductions that are out there.
Some of the most popular include city taxes or money that is put towards insurance and retirement costs. Many employers allow their workers to put money straight from their paycheck into a 401k, for example.
The other number you’re already familiar with, most likely? Net pay. This is because this is the actual amount of money you’ll be taking home with you at the end of the week. Your net pay is the money left over after all the taxes and deductions have been taken out.
It is, therefore, smaller than what your initial gross pay total was.
Understanding the various taxes and deductions taken out can give you a better handle on your own financial situation. It will also allow you to better look out for mistakes or issues on your pay stub.
Understanding Your Paystub
It can be frustrating to be handed a piece of paper each week and not know what it means! The above information can help you to better understand your paystub.
Need more advice and information for the workplace? Keep scrolling our blog for more.