A good number of employees rarely understand why the money earned is not always 100% of the amount that an employer promises. This is simply because they do not take time to examine their pay stub. An employee’s pay stub is simply a part of the paycheck. The pay stub contains a lot of details about the salary received. Some of the details include:

The two categories of pay found on a paycheck

Gross pay

This is the initial amount earned by an employee prior to implementation of deductions by an employer.

Net pay

This is the amount that an employee is left with after all the necessary deductions have been made.

The deductions made from a paycheck

Medicare deduction

It is meant to serve Medicare insurance needs of an employee. It is computed as 1.45% of employees’ paycheck. The employer also aids the employee in addressing this deduction by contributing 1.45%.

Federal Insurance Contributions Act (FICA) or Social security tax

This tax is levied to guarantee employees of monthly social security payment when they retire. For this to be realized, employees must be deducted 6.2% from their paycheck. The employer is also mandated to pay 6.2% to facilitate the social security of the employee.

Life insurance deductions

In some cases, the employer may furnish the employee with a life insurance policy. In such an occurrence, the employee may be required to pay a certain amount from the annual salary to keep the policy operational.

Federal tax (FIT tax or Fed TX)

This is the tax that an employee owes the federal government.

State tax (SIT or St TX)

This is the amount imposed on employees by some states. It is deducted from the paycheck.

Local tax

It is not a common type of tax but it imposed on employees residing in certain regions or counties.

Year to date

This section of the paycheck indicates the amount paid for various deductions at any time of the year.

Other deductions include:

Miscellaneous deductions

They take the form of union dues, charitable deductions and other stated mandated deductions.

Leave duration

The paycheck might also include details concerning sick and vacation leave that an employee is entitled to. Information about the number of time each kind of leave has been utilized is also indicated and the remaining duration.

Finally, employees need to make efforts to comprehend all the information shown on their paycheck. The information is necessary in helping them understand how their net pay is arrived at, how they will budget for it and the benefits they are exposed to as a result of paying for the deductions.

Photo Credit: Shutterstock/goodluz

The post Understanding Your Pay Stub appeared first on UELG.

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

The post Understanding Your Paycheck Stub appeared first on UELG.