With direct deposit, it is easy not to glance at your pay stub. But it is essential to know how to read it. It's also important to review your pay stub occasionally to check for possible errors and withholdings. We will review a typical pay stub so you will know precisely how to navigate it. With our help, it will be simple.
Most pay stubs have the employer's information in the upper left-hand corner, followed by the pay period for the paycheck.
Moving downward on the left-hand side, a section titled "Gross Pay" lists the employee's gross salary per pay period, along with any additional payments. Running parallel to these numbers will be two columns, one labeled "Current" and the other labeled "YTD," or year-to-date.
The right side of the pay stub is for tax information and deductions. Each item on the right-hand side will have separate numbers for current amounts and YTD.
Finally, the pay stub will summarize all the numbers listed and provide a total for net pay.
Gross pay refers to the employee's taxable income or the total amount of money earned in a pay period before taxes or deductions.
The columns "Current" and "YTD" help the employee track how much they've earned and paid in taxes and deductions for the pay period and the entire year through the respective pay period.
This section often includes the employee's hourly rate and the number of hours worked.
Here are the most common taxes listed on pay stubs:
Federal income tax — The employer uses several pieces of information to determine the employee's annual tax liability, including the worker's marital status, income level, and the amounts of allowances listed in their W-4. Employees can adjust the amount deducted from each pay stub by changing the allowances listed in their W-4s.
State taxes —Some states collect state income tax for each pay period.
Federal Insurance Contributions Act (FICA) refers to the law requiring every employee to contribute to the Social Security and Medicare programs with each paycheck. Employers must also make additional contributions to these programs, often listed separately.
Besides taxes, many workers will find additional deductions on their pay stubs. These include deductions for insurance coverage, health savings accounts, retirement contributions, and childcare costs.
Some pay stubs will include a sub-section for employer contributions, which refers to any employer-sponsored contributions for the abovementioned purposes.
The final section of a pay stub summarizes all the information and highlights the employee's net pay or the amount of money they'll see on their paycheck. Because this summary is so easy to find and read, many skip over the pay stub and go directly to the summary.
And now you know how to review your pay stub. It's essential to review your pay stub regularly. You need to check for errors and ensure the correct tax amount is being withheld. Like this post? Check out our other Money Smart Tips Posts.