Understanding Your Paycheck
Friday, July 21, 2017, 6:00 AM | Leave Comment
Whether you’re starting a new job or you’ve been working there for years, it is easy to take for granted that your paychecks will always be processed with the correct hours and the appropriate deductions.
Even if you receive direct deposit payments, you should also receive a statement where you can view the details of your paycheck.
While accessing these details may not be a problem, understanding your paycheck based on a list of numbers can be difficult without some basic information. Without a firm grasp of how to interpret these deductions of your paycheck, you might unknowingly lose money due to small errors in your reported hours and benefits.
Understanding your paycheck can also help you in planning a budget for future pay periods. You can calculate your paycheck in order to get an accurate picture of the amount you will receive after all taxes and deductions have been taken out.
This will help to avoid overstretching your finances during normal pay periods as well as periods that include exceptions like vacation, overtime, and sick days.
What Is Listed On Your Pay Stub?
The most common details listed on a pay stub are the hours you’ve worked within a pay period, pay amounts, tax withholding, and benefits. Each of these have been broken down into smaller elements and defined below.
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Pay Amounts
Hours Worked can vary depending on whether you are paid a salary or an hourly rate. For hourly employees, this should be the exact number of hours you worked during the pay period. For salaried employees, the number may be the average number of hours in a pay period and may not correspond to the hours you’ve actually worked.
Keep in mind that a paycheck might not be from the most recent pay period. Always check the dates listed for the pay period when checking your hours.
Additional Pay such as bonuses, overtime, holiday, and sick pay may appear as separate balances.
Total Gross refers to the money you’ve earned based on the hours you’ve worked and the hourly rate or salary you’ve agreed to. This is your pay before taxes and deductions have been taken out.
Total Net is the amount you will take home after taxes and deductions.
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Tax Withholding
Social Security Tax contributes to a fund that provides income to people who are currently retired, disabled, or the families of deceased workers. The program is designed so that you pay for the current generation of recipients, while future workers will pay for your benefits when you become eligible. The current rate is 12.4%, though typically your employer will pay half of the amount the Federal Insurance Contributions Act (FICA) requires to be withheld.
Medicare is similar to Social Security in that the employer usually pays half of the 2.9% tax rate required. These funds support a federal health program for people over 65 as well as some younger people with particular disabilities.
Federal Income Tax is withheld from each paycheck and supports many federal programs related to healthcare, veteran’s benefits, national defense, job security, education and job training, law enforcement, energy resources, pollution, science and technology, agriculture, community development, responses to natural disasters, and more.
The amount taken out of a paycheck will depend on the number of tax exemptions you have claimed. When you file your taxes, you will either receive a refund or be required to pay additional taxes based on your tax bracket.
State Income Tax will have various rates and tax brackets according to each state. As with federal income tax, these funds support a variety of projects on a state level.
Locality Taxes are additional taxes enforced by the city or county in which you work. These may be permanent in order to support operating budgets or they could be imposed temporarily in order to fund a specific project.
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Benefits
Employer-sponsored Retirement Plans such as a 401(k) can be deducted directly from your paycheck using either pre-tax or post-tax dollars. Some companies will match a certain percentage of what you put into these accounts.
Employer-sponsored Health Insurance payments can also appear here, including medical, dental, vision, life insurance, disability insurance, and flexible spending accounts. Be sure to check that the correct amount is being deducted for the plan you’re enrolled in.
Miscellaneous benefits that your company might offer include gym memberships, daycare services, and cafeteria plans. Though these benefits may be fully funded by your employer, they can still be reported as a form of income that you will need to pay taxes on. It’s best to check with your payroll manager to confirm this.
Each of these values should also include a year-to-date amount, which can be helpful in planning for long-term expenses.
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What to Do If Your Paycheck Is Wrong
If you get in the habit of carefully reviewing your pay stubs you will stand a better chance of catching occasional errors that may occur. If you notice something seems wrong, you should contact the appropriate manager, someone in human resources, or the payroll department. It’s important to do this as soon as possible since these errors become more difficult to fix over time.
With a new set of financial challenges facing people today, it’s more important than ever to understand where your money is going and how much of it you’ll be able to put toward the things you want and need. After all, you dedicate so much time and effort to your job. It only makes sense to spend a few extra minutes making sure you’re getting paid for the work you’ve done.
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