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Understanding Your Paycheck Stub

Understanding Your Paycheck Stub

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If you look at your paystub and you’re wondering why you’re not getting as much as your salary is supposed to give you, then keep on reading. It is important to manage your finances and budgeting and a large part of that is understanding your paycheck stub and the deductions that occur every time you get paid.

What is Usually Included in a Paystub?

Different companies might print their paychecks in different ways, but there are always several key components that employers need to include on the statement by law.

  • Gross wages: This is total amount of income you earned over the pay period. Pay periods are usually either bi-weekly or monthly, this is determined by the employer. If you are a salaried employee, this is simply your yearly salary divided by the amount of times. If you are paid hourly, the paystub would show your pay rate (your pay per hour) and the number of hours worked. Your gross wage would be these two multiplied together. Keep in mind that this is not the amount that you get paid, because it does not include deductions.
  • Federal tax: Besides Medicare and Social Security, this is a cut of your paycheck that is taken by the federal government. If you remember back when you were first hired, you might recall filling out a W-4 form. This form indicated your tax situation (exemptions, status, and so forth) and let your employer know how much to withhold from your pay for federal taxes.
  • State tax: Whether you have to pay state taxes depends on the state in which you are residing and working. California does participate in state taxes, and this money usually goes into funding for state programs such as public safety, public works, education, health, court justice system, and more.
  • Local tax: This is less common, and will depend on the city you live in. New York and Washington DC are among the several cities that have this additional city tax.
  • Social security: This money is set beside by the federal government in order to provide benefits for the elderly. When you retire, you will be able to use social security benefits in the form of a monthly social security payment.
  • Medicare: Medicare is similar to social security in that a certain percentage is deducted from your paycheck, and when you retire at 65, this money is used to help cover health insurance.
  • Other: You may see additional withholdings and deductions, such as life insurance premiums or retirement plan contributions, such as a 401K
  • Net pay: This is the amount you get paid after all deductions have been made, the amount that is given to you on  your paycheck or direct deposit.

Photo Credit: Shutterstock/Africa Studio

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