How Do You Read Pay Stubs?
A pay stub is a part of the paper paycheck that the employee keeps after cashing their payroll check. The information included on the pay stub normally includes the amount of hours worked, the amount paid to the employee, and a simple breakdown of the taxes paid and various deductions from pay. For most of us, the most exciting part of working is receiving our paycheck stub after putting in a considerable amount of hard work. It is important to be educated on reading your pay stub and paying close attention to the portions listed on your paycheck stub, as it can play an essential role in budgeting and money management.
What is included on a pay stub?
Although many paychecks differ slightly from one another, there are many aspects that are required to be included for the employee by law. These portions are often explanation statements of the amount of pay, and what is being taken out of it and where it is going. Some pay stubs may include detailed information such as retirement contributions and vacation time, while others provide a more general sense with only the required information. Here are some of the required items on the pay stub:
Gross pay includes the total amount of pay earned during the pay period. The pay period is determined by the employer, and ranges from either bi-weekly or monthly.
This includes the amount of income that is left after all withholding and deductions have been applied.
Federal Tax Amount
The Federal tax amount covers any tax that you own to the Federal government, and is deducted incrementally out of each pay stub.
This depends on the state you live in where you may or may not be required to pay a state tax. This amount is deducted from your paycheck in a similar way that the Federal tax is deducted.
Local taxes are sometimes applied to employees of particular cities, counties, or school districts.
Social Security requires every employee to have a percentage of their pay withheld for social security purposes. This provides your monthly retirement accruement.
Similar to Social Security, Medicare withholds a mandatory percentage of your paycheck. Every employee pays 1.45% of their paycheck for Medicare, and every employer contributes 1.45% on behalf of the employee.
The year-to-date portion of the pay stub displays how much you have paid towards a certain withholding at any point.
Paying careful attention these portions of your pay stub can help you devise effective budgeting and money management strategies. It is important to understand the details of your pay stub so that you can recognize how your money is being handled and where the portions of your pay check are going.