Career Tests Guide

Understanding Your Paycheck Stub

Understanding your paycheck stub is the first step for managing your money. Every pay period, along with your paycheck, you get a stub – an extra little bit of paper with a lot of information. Depending on your employer, your stub, or explanation statement, can look very different. However, there are certain pieces of information that every employer must include on a paycheck stub.

Gross Pay

Your gross pay is your total income from this pay period.

Net Pay

Your net pay is the amount you actually receive. Your gross pay becomes your net pay by subtracting all withholding, including taxes, Social Security and Medicare.

Federal Tax Amount

The amount withheld from your paycheck for federal taxes can vary, depending on the number of exemptions you claim on your W-4 form. Your employer required you to fill out a W-4 form when you were hired and you will need to fill a new form out every year. This money goes to cover your taxes when you file your yearly tax return. If too much was withheld, you will receive a tax refund. If not, you will need to pay an additional amount.

State Tax Amount

Most states withhold set amounts from your paycheck to cover your yearly state tax obligations, just like the federal system. However, not all states use this system, so you may not have a state tax amount listed on your pay stub.

Local Tax Amount

Some cities also withhold taxes from paychecks, but it is relatively rare.

Social Security

A percentage of every paycheck you receive is withheld for Social Security. That amount changes annually. Upon your retirement, the federal government will pay out a monthly Social Security payment. You may also have a number listed for FICA on your paycheck. FICA (Federal Insurance Contribution Act) payments are made by your employer to match your Social Security contribution.

Medicare

Medicare withholding from your paycheck operate similarly to Social Security, though are specifically meant for paying your medical expenses after retirement. Your employer is also expected to match your contribution.

Year-to-Date, Important Notices, and Other Information

Your paycheck stub should list how much you’ve paid to each withholding so far in the calendar year. Many employers add notices to paycheck stubs, since all employees will receive one, and depending on your employer, your paycheck stub may include other deductions, such as insurance payments or retirement plan contributions. It may also list leave time, childcare assistance or other benefits.

By understanding your paycheck stub the money budgeting process will be easier for you. Your monthly budget is one of the tools that you need for making a career change plan.

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