Understanding Your Paystub
There's a lot of important information on a paystub and you should know what's there. It doesn't matter whether you have direct deposit or not, you will still receive an itemized list of pay and deductions for each pay cycle. Here are the important items you should notice on your paystub.
Gross and Net Pay
These are the two most important items because they represent your overall and take-home pay. Your gross income is the amount that your employer pays. If your salary is $40,000 per year, that would be your gross income divided into each of your paychecks. It's important to note whether all paychecks for the full year add up to that total.
After deducting taxes, health insurance premiums, 401(k) contributions, and any other items in each pay cycle, you're left with your net income. All deductions will be itemized on your paystub, so you can add them up to make sure your net pay is accurate.
The net income is not necessarily the total that you have for the entire year. Depending on your W-2 or W-4, you may be entitled to a tax refund. Of course, you could also owe additional taxes at the end of the year.
There are a lot of taxes taken out of every paycheck. Some of the payroll taxes are higher than others. These will include local, state and federal income taxes, which are all withholding taxes. State and local taxes depend on where you live and may not be deducted in your place of residence. In addition, you have to pay social security, Medicare and possibly unemployment insurance tax.
Note that employers pay federal unemployment tax, but some states require employees to contribute to local unemployment insurance. Some of these taxes may be itemized or lumped together as FICA (Federal Insurance Contributions Act). Social security and Medicare are both apart of FICA and may be grouped together. Social security tax is set at 6.2% of gross income, while Medicare is set at 1.45%.
Additional deductions that may show each pay cycle include 401(k) contributions and insurance premiums. Unless your company pays for your insurance premiums, it will be deducted from your paycheck. You may also have pre-tax health savings account deductions. In addition, you may have disability insurance deducted from your paycheck.
All of these are considered voluntary deductions. These contributions depend on your choices as an employee. They may also depend on your gross income and state in which you live.
Hold onto Your Paystub
You should hold onto those paystubs throughout the year. Employers are required to provide forms with all the pay and deduction information at the end of the year. However, sometimes these forms get lost, delayed or mishandled.
Throughout the year, each item on your paycheck will also include a YTD section. This indicates how much you were paid, or total deductions year-to-date. This is an important section for your tax records.
If you at least have the stub from your final paycheck of the year, you will still have all the necessary information to file taxes. To generate your paystub smoothly, try our check stub maker now!