Finance 101: How to Read Your Paystub

Erin Hoffman's Finance 101 series continues with a handy reference guide to understanding your paystub.
Erin Hoffman Paycheck
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In today’s digital world, primarily with direct deposit, we rarely see our physical paycheck. It is definitely easier to have direct deposit than dealing with a paper check, however it’s important to review your paystub once in a while. This will help you catch faults in your pay, budget and protect your income.

Your pay stub can be broken down into four standard pieces of information: gross pay; tax withholdings; deductions; and net pay.

Gross pay is the total amount of earned money for a given pay period. Sometimes this includes overtime or bonuses. This area will also include your year to date (YTD) gross pay.

Tax withholdings includes state & federal taxes; Social Security & Medicare; and health insurance premiums. These employee paid premiums could include vision, dental, and medical coverages. The factors considered in determining your federal income tax liability include average pay and the number of dependents you claim. This projected amount is then divided by the amount of pay periods per year and then deducted from your paycheck. At year’s end, if the money deducted was more than your tax liability, you will receive a refund. If it was less, you will owe taxes.

Deductions– Retirement contributions; child care payments. This also might include a Flexible Spending Account, or Health Savings Account. Sometimes Medicare and Social Security deductions are bundled as FICA, Federal Insurance Contributions Act. 6.2% of gross income is contributed into your Social Security fund, and your employer chips in an additional 6.2%. If you are self-employed, you must contribute both, 12.4%. For Medicare, each employer must contribute 1.45% of gross income and the employer must match. Also, ask your employer, if they offer a ROTH-401k option. This is an after-tax deduction option.

Net pay is your take-home pay, or the actual amount the check is made out for. This information is helpful to create a budget, start saving, or work on mitigating debts.

Above all, it is imperative to track our deductions. Errors are our responsibility, and no one wants errors repeated on several pay periods. For instance, if your employer does not withhold enough taxes for you, you will owe money come year end. It is also key to review the information on your last pay stub matches the information on your W-2 form, which includes the taxes and wages for the current year. If you get paid hourly, keep track of the hours you work, and make sure you are getting compensated correctly.

As you’re reviewing your paycheck stub, it’s a great time to consider your financial goals as well. This includes savings, budgeting, business planning, and how to achieve financial stability. Financial education means financial freedom. For women, this independence is as critical as ever.

Erin Hoffman is a Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Certified Financial Services LLC is not an affiliate or subsidiary of PAS or Guardian. OSJ: 52 Forest Ave., Paramus, NJ 07652, 201-843-7700. Erin Hoffman CA Insurance License #4029326. 2020-96286 Exp. 3/22 

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