Making sense of your stub paycheck: Everything you need to know

Making sense of a paystub can be challenging, especially if you’re just getting started on your career journey. That’s because it contains various types of financial and personal data that can be difficult to decipher.

At the same time, understanding your stub paycheck is very important – it gives you detailed information on wages, taxation, deductions and other essentials you need to be tracking. If you don’t know how to get started with decoding a paycheck stub, here are the biggest essentials to keep in mind.

Information on Your Pay

A few items on a pay stub refer to your wages.

Typically, the first item entered on a paystub is the amount you’re owed for the respective period (whether it’s a week, a bi-weekly or a monthly payment).

The number is reflective of the method you are being paid and it differs for salaried workers and those being paid by the hour. Based on the payment method, you may see some additional information like pay for overtime hours and bonuses.

When it comes to the sum you’re being paid, there are three very important numbers to check out:

• Gross earnings: the amount that a worker receives before taxation
• Year-to-date gross earnings: the entire sum a worker has received since the beginning of the fiscal year
• Net pay: the amount that will actually be received by the worker after taxes and deductions are taken out

Taxation and Deductions

While pay information is fairly straightforward, there are a few additional more complex paycheck stub entries that also have to be examined. Taxation and deductions rank among those and many people struggle with decoding exactly how much has been taken out of their salary and what for.

This section of a paycheck stub includes multiple entries that depend on location, line of work and employment specifics:

• Federal income tax withholdings:  this is a deduction based on your W-4 – a sum that the government takes out of your earnings. The IRS is the entity responsible for calculating this deduction and the process is the same for both salaried and hourly workers.
• State and local tax withholdings: apart from taxes that the government enforces, there could be state and local income taxes that workers see taken out of their salaries. These can be difficult to calculate because there are major differences from state to state. Some places like Florida, for example, don’t impose a local income tax. On the other hand, there may be cities that have their own tax policies on top of the state income tax.
• Federal Insurance Contributions Act (FICA) payments: as per FICA, each taxpayer in the US has to contribute to two programs – Social Security and Medicare.
• Other taxes and deductions like insurance, health savings account contributions, retirement savings plans, etc.

Reasons Why You Need to Review Your Paystub

While there could be some additional types of information listed on a paystub, the entries mentioned above are the most important ones. You need to review these numbers, as well as everything else that a paycheck stub contains for a couple of reasons.

You are the one responsible for making sure that your pay rate and tax withholdings are correct. Mistakes can occur and it’s important to spot those early on. Having to work on corrections later on with the IRS (when filing your taxation documents, for example) is going to be a much more cumbersome task.

Paystub information is also essential if you’re doing budgeting (as you should be). Financial responsibility begins with understanding basic numbers and how these affect your income.  Having a good understanding of such data will help you make smarter financial choices that will guarantee your stability and long-term welfare.