Understanding the different parts of a paycheck is important. Here are 3 key things to pay attention to on your pay stub.
When’s the last time you took a close look at your pay stub? Have you ever looked at it to see what it contains?
Anyone who receives a paycheck from work should receive a pay stub with it, and this stub contains a lot of essential details about your income and deductions.
It’s a good idea to review your pay stub occasionally to know what your employer is paying you and taking out of your check.
There are several vital parts of a paycheck to pay close attention to as you view your stubs, and here are the most important sections to review.
1. General Details
Paycheck stubs typically list several types of general details on them, and you can usually find these at the top. General information on a pay stub includes the following things:
- Employee’s name and address
- Employee’s social security number
- The pay period dates
- Employer’s name and address
You will also see that a pay stub usually contains exemption rates, too. When you completed your paperwork at the start of your employment with this company, they would have asked you to complete a W-4 Form.
A W-4 form is an IRS form that asks you how many dependents you are claiming. You can choose any number you want, but you should realize how this works before deciding on a number.
If you choose “zero,” your employer will withhold more taxes from your check. If you select a higher number, your employer will withhold fewer taxes.
The purpose of claiming dependents is to help you accurately determine how much you will owe for federal taxes on your tax return.
Larger families may pay lower tax rates than smaller families, and that is why your employer will withhold more taxes if you claim zero exemptions.
Next, there is a section on your pay stub to reflect the income you earned for the current pay period as well as for the year-to-date.
Each time you get paid, you should verify this information, especially if you get paid an hourly rate for the hours you worked for the period.
Additionally, you can read on your paycheck stub the year-to-date total for the amount you earned. If you get paid in several ways, like regular wages and bonuses, your stub should list each separately.
If you work for yourself and do not currently take regular paychecks, you may want to start. Without taking regular checks, you’ll have trouble proving your income when applying for loans.
You may also want to do this so that you can pay taxes throughout the year instead of only at the year-end.
You’ll also see a section on your paycheck stub for the taxes you paid for the pay period. Your employer has to withhold several different taxes from your paycheck. Here are some of the different ones you’ll pay from each paycheck:
- Federal – You must pay a certain rate of income to the federal government for all the money you earn.
- State – You must also pay a portion of your income to the state government, and this refers to the state where you work.
- Local – As an employee, you are also required to pay taxes to the county where you live, and this is what local taxes are for.
- FICA – FICA is a term that refers to Medicare and Social Security taxes you pay out of each paycheck.
Each tax you paid will also have a category for the year-to-date totals so you can see how much you paid into each type. Your employer withholds these taxes and pays them to the correct organizations on your behalf.
Some people elect to have extra taxes withheld from their checks each week, and you can do that, too. If you always end up owing money on tax day, ask your employer to hold back more money for that specific tax.
By withholding more money each time you get paid, you might pay in enough to cover your tax liability. If so, you might get a tax refund at tax time instead of owing the IRS money.
You may also see a list of deductions on your stubs. Deductions are also amounts that your employer withholds, but they are not for taxes. They are for other things, such as your health insurance premiums and retirement fund contributions.
If you choose to contribute to a 401k plan, for example, you should see the amount you paid into this fund for the pay period.
If you choose a dollar amount, that is the amount you should see withheld from each paycheck. If you choose a percentage to contribute, the amount may vary from paycheck to paycheck.
5. Net Pay And Gross Pay
One essential part of a paycheck to understand is the difference between gross pay and net pay.
Gross pay is the total amount of money you earned from your job for the current pay period. After your employer withholds your taxes and any other deductions, they subtract these amounts from your gross pay.
The result is your net pay. Therefore, net pay equals gross earnings minus deductions. Your net pay is the total amount of your paycheck for the period.
Why You Should Learn What The Parts Of A Paycheck Are
Now that you understand the key parts of a paycheck, you should have no trouble reviewing and verifying the accuracy of yours each time you get paid.
Reviewing the accuracy of your pay stubs is an essential thing for you to do each time you get paid, just to make sure you’re getting paid the correct amount and paying the right taxes and deductions.
If you have further questions about paycheck stubs or need help creating your own, check out our website. We have a lot of helpful and informative articles on this subject.