Understanding Your Paycheck Stub

April is a good time to look at your paycheck stub.  To avoid surprises at tax time you need to make sure your money is allocated properly all year long.  It is possible I’m the only person that still looks at their paycheck stub online every pay period.  Why would I look at this so often?  I like seeing the numbers – I also want to make sure things are going where I want them to.  Sometimes your pay can vary from check to check so it is important to understand what those words and numbers mean.

Paycheck Before – Gross Pay

Gross pay is the total amount of money that you are owed by your employer for all your hard work.  Gross pay is calculated differently depending on how you get paid, hourly or salary.  For salaried employees you divide your annual salary by the number of pay periods you have throughout the year.  For hourly, it will be your pay rate multiplied by the number of hours you worked.  If you are a “non-exempt” employee you might be eligible for overtime pay or other compensation that is a different amount than your hourly rate.  Be sure to check to see that you were properly compensated if your hours are above normal or if you worked on a holiday.

Gross pay amounts are pretty easy to estimate when you know your salary or rates.  If the amount seems lower or higher than expected it is important to address it right away.  For example, think you got a raise but the numbers for your gross pay don’t reflect it?  Check to see if a mistake was made that your employer can correct for you.  Sometimes it is just a data entry error but if you aren’t paying attention you might miss it.

Paycheck After – Net Pay

Net pay is the amount you actually get to take home after taxes and deductions are taken out. Usually employee pay is taxed and there is little flexibility in what you can control here. Your federal, state and local (if applicable) taxes will be deducted each pay period.  FICA taxes also come out of your gross pay.  These are your personal contributions to federal programs like medicare and social security.   If you are a teacher or government employee you will pay into different programs but still can see what you contribute on your paycheck stub. 

Voluntary contributions to retirement accounts, automatic charitable contributions or payments to external accounts are shown as line items on your check stub.  For example, I fund my children’s 529 savings plans directly so that money never hits my checking account.  If you take a loan from your employer sponsored retirement account you will see the amount you are paying back as a line item on your pay stub in addition to any contribution you might be making. If you cover your family health care coverage like I do you will notice a big difference between your gross and net pay amounts.  Its a good thing they are cute. 

Breaking Down Tax Brackets

Your tax bracket is based on the amount of “taxable income” you earn annually.  Being in a high tax bracket means you make a lot of money and I personally think that’s a good problem to have.  Having spent some time in the lowest tax bracket I welcome moving on up!  It is a little confusing when someone says they are in “a” tax bracket because there is a better chance they are in several of them.  We have a progressive tax which means different ranges of your income get taxed at different percentages.  The only time all of your money is taxed at one rate is when you are in the lowest tax bracket.   

There are some cons (relatively) to moving into a higher tax bracket.  You won’t be able to take certain deductions or make contributions to some tax advantaged accounts when you hit higher income thresholds.  Things you can do to reduce your taxable income include contributing pre-tax dollars to a traditional IRA or 401(k) account.  You can also contribute to a Health Savings Account if your health insurance plan allows for it.  Dependent care and flexible spending accounts can also reduce your taxable income.

Paycheck Stub Surprises

I’ve worked at the same place for a long time.  Over they years I have signed up for different things through payroll deduction that I have cancelled for various reasons.  If you don’t look at your paycheck stub there might be benefits that you are paying for that you no longer use.  Things like gym memberships, transportation benefits will all keep coming out of your pay check unless you cancel.  It’s good to stay on top of this by looking at your pay stub.  You should also check out your bank statement for expenses that come out of your checking account directly often too.

Get that money right!

Did you get a huge refund this year? You may be taking too much out of your paycheck.  You don’t want to loan the government too much money every year when you could be investing or saving it yourself.  The average refund according to IRS is $2800.  If that sounds familiar to you it may be worth going to their website and running through their W-4 calculator to see if you should reach out to your employer to change your withholding.

You work hard for your money.  Make sure that the net pay amount isn’t the only number you pay attention to throughout the year. If you don’t know how to access your paycheck stub reach out to your employer for help.  Once you get it – keep it safe and secure.  There is a lot of information on it about you that you wouldn’t want getting into anyone else’s hands.  Have you taken a look at your paycheck stub in awhile?  What other payday tips do you have? Leave a comment below! 

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