How to Understand Your Paycheck: A Guide on Reading a Paystub

When payday comes around, everyone is happy.

Whether you’re paid a salary or you’re paid by the hour, you probably have a pretty good idea of how much money is coming into your bank account.

But, when reading a paystub, you may feel a bit confused. There’s a lot of numbers on it and you’re not sure what they all mean.

If you’re confused about how to read your paycheck, check out this guide to learn how it’s done.

Paycheck Basics 

First off, let’s start with the basics of reading a paycheck. Here’s what you need to know:

  • Pay Period: This is the time you worked for (generally, a two week period)
  • Pay Date: This is the date your payment was issued. If you get direct deposit, this may not be the same day the paystub is physically handed to you
  • Name and Address: This is present so your employer can send you important documents in the future
  • Social Security Number (or part of it)
  • Marital status and the number of exemptions you’re claiming

You can check out the https://www.thepaystubs.com/ website to learn more about paycheck basics.

Net Pay vs Gross Pay 

Many people are confused about the difference between net pay vs gross pay.

Gross pay reflects the total amount of money you’re being paid for during the pay period. Net pay, on the other hand, is the amount of money you’re actually receiving once all of the deductions are taken out.

There are several deductions that get taken out of your paycheck. These include:

Federal Tax Withholding

How much you get taken out in federal taxes will depend on your marital status, wages, and whether you’re paid hourly vs salary.

Federal tax is taken out so that the government can provide services to its population.

State Tax Withholding

Your paycheck will also tell you how much state tax is withheld. Similarily to federal tax, state governments pull out state tax so they can operate their state governments.

Each state determines it’s own percentage, so how much is taken out of your paycheck in state tax will depend on where you live.

Local Tax Withholding

Some areas also have local tax withholding. However, most places do not impose this.

Social Security Deduction

Your Social Security deduction goes into a fund so that you will have some financial stability when you retire.

Basically, the Social Security deduction serves as a savings account that you can use in the future.

FICA 

If you sign a line on your paystub that says FICA, that refers to a deduction for the Federal Insurance Contributions Act tax.

This is a tax that both employers and employees have to pay and is used to fund Medicare and Social Security. These are both federally run programs that benefit retirees.

If you don’t see this deduction on your paycheck, it likely means that you’re still paying into these programs individually through Medicare or Social Security.

Reading a Paystub: Are You Ready to Read Yours? 

Now that you know about reading a paystub, it’s time to take a closer look at your own.

And, if you liked this article, be sure to check back in with our blog for more posts like this one.