3 Key Tips to Accurately Reading Your Pay Stub

The majority of Americans receive pay on a monthly basis. This means that most of you receive a piece of paper at the end of each month with details of your pay (and the deductions from it).

Unfortunately, as many of you know, reading your pay stub can be tricky. Many people simply look at the number that pops up on their bank balance rather than trying to decipher it.

However, that paycheck stub holds valuable information. Understanding it is useful for any worker.

Read on as we share the three most important tips for learning how to read your pay stub.

Tip #1: Get Familiar with the Basics

Part of what makes pay stubs so confusing is the amount of detail they hold. With all the different terms, sections, and abbreviations, it can be difficult to find what you need.

Firstly, your paycheck stub should always include your basic personal information. Your name and home address should be in the top left-hand corner.

The beginning and ending dates of the payroll period should also feature. These are the days between which you earned the income which is to be taxed.

Your filing status is also included. You will have a separate status for federal and state taxes. Your filing status will generally relate to whether or not you are married.

Gross pay and net pay: What’s the difference?

Learning to distinguish between gross pay and net pay is one of the most important parts of this process.

The difference between the two is simple. Gross pay is the amount your employer pays you before any taxes or deductions are imposed. Net pay is what you are left with once all of these reductions are taken out.

As you can imagine, there can be quite a difference between the two numbers!

Your gross pay breakdown is detailed on the left-hand side of your pay stub. Here, you will see the amount of gross pay you earned during the relevant pay period. You will also see the amount you have accumulated over the tax year.

On the right of the slip, you will see the difference between your net and gross pay. Again, the total amount of deductions from both the relevant period and the entire year are detailed.

Tip #2: Learn to Understand the Different Types of Deduction

Finding the total amount deducted from your pay stub is one thing. Knowing about all the different directions in which that money goes is another matter entirely.

As you can tell by looking at your pay stub, there are a variety of different deductions to be paid.

Federal income taxes

These are the charges you pay to the federal government, rather than your state.

These payments are deducted and redirected by the Internal Revenue Service (IRS).

While everyone has to pay federal taxes, not everyone has to pay the same amount.

Obviously, the first thing that brings up your federal tax level is your income. The more you earn, the more you pay.

However, allowances are another reason that you might pay more than someone else. When you fill out your W-4 form, you give details of the allowances you are entitled to claim, based on your family circumstances.

State taxes

These will obviously vary a bit depending on the state you live in. Some states may not charge income tax at all.

State taxes are used for various public projects.

Social security

This is a federal deduction. Again, this means that it applies to everyone, regardless of the state you live in.

Every worker must contribute 6.2% of their gross income to social security. Every employer must also pay this amount in respect of each of their employees.

These funds go towards retirees or those unable to work.

Medicare

This operates in a similar way to social security.

For Medicare, every employer and employee contributes 1.45% of the employee’s gross pay. These funds pay for health insurance for older Americans.

Voluntary deductions

There are certain deductions that you sign up for yourself.

These include things like insurance and savings plans for retirement and healthcare.

These do not apply to everyone, and may not be available to you if your employer does not make allowances for them.

There are many advantages to these types of payments. For instance, some of them are deducted before tax is calculated, allowing you to reduce the amount you pay to federal and state governments.

Tip #3: Always Verify that Your Net Pay is Correct

Now that you know where your money should be going, you can make sure you aren’t missing any.

There are a number of things to be mindful of here.

For example, is your level of taxable pay consistent with the pay period you are currently in?

Are your basic details correct?

If you have signed up to certain benefits, are they being deducted properly?

Is your state tax deduction accurate based on the state you live in?

Generally, the people putting together your pay stub know what they’re doing. However, mistakes can and do happen.

Because pay stubs can be confusing, some of these mistakes may go unnoticed by employees for long periods. This can add up to significant losses in some situations.

Reading Your Pay Stub Made Easy

By now you should have a much better idea of the different elements that make up your pay stub.

Reading your pay stub may seem like a chore. As some people note, you’re probably getting paid the same amount whether you take the trouble to do it or not.

However, it’s important for workers to know where their hard-earned dollars are going.

If you think there’s a mistake in your pay stub, let someone know. Don’t let a lack of knowledge hurt your pocket!

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