There’s nothing more exciting than opening your first paycheck. Your hard work has paid off and it’s time to see what you’ve earned!
But what happens if you don’t know how to read a paystub? Your excitement can quickly turn to confusion especially if you don’t know the difference between gross wages and net pay.
In fact, you pay taxes several taxes, so be prepared to see multiple deductions.
If you’re wondering how to read a paycheck stub then keep reading for an easy to understand breakdown.
How to Read a Paystub
Some things your pay stub will include your name, the dates you were paid for, the exact amount of hours you worked, your gross wages, any deductions you pay into, what your employer contributes, and your net pay.
Gross Wages
These wages are the exact amount you can expect to be paid prior to any money being withheld. If you earn $10 an hour and work 40 hours a week, your gross wages for that week would be $400.
Net Pay
The cash remaining from your paycheck after deductions and taxes are removed equals your net pay. This includes medical, dental, vision, retirement, pension contributions, taxes, and any other expenses you have deducted from each pay period.
Tax Deductions
Each paycheck will have several different types of taxes withheld. These include federal income tax, state income tax, local income tax, and FICA.
Local income taxes help each county and contribute to unemployment and state disability.
FICA (Federal Insurance Contributions Act) is deducted to help pay senior citizen’s Medicare and Social Security benefits. It uses your social security information to track the amount of money you have contributed for when you yourself will need Social Security benefits.
Retirement Funds
Depending on your industry you may have other deductions such as retirement or a pension. These may include a 403(b) and a 401(k) as well as Employee Stock Ownership Plans (ESOP).
Health Insurance
If you receive insurance through your employer you will see your contributions deducted from each paycheck. These deductions are typically divided equally throughout the year.
Additional Deductions
No matter where you work, your company uses a pay stub template to help calculate your deductions. In addition to gross wages, net pay, and various insurance premiums, they’ll calculate any additional deductions.
If you have a life insurance policy through your employer, you can expect to see this deducted from your paycheck.
When your first begin a job you will be given a W-4 to complete. You will have the opportunity to claim your allowances depending on whether or not you are married, single, have children, and so on.
Even if you have a family you can choose 0. Choosing 0 means the maximum amount of state and federal taxes will be withheld from your pay.
Choosing 1 means you will get fewer taxes deducted, which in turn equals more cash in your immediate pocket. You do, however, run the risk of owing the government money at tax season.
Bringing Home the Bucks
Now that you know how to read a paystub you’ll be well-prepared every time you cash your check. The lines of deductions will no longer look confusing and you’ll know exactly what you’re making and where your money is going to.
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