Whether you’ve earned your first paycheck or moving states, it may be the first time you’re encountering paystubs. You’re curious to understand the information it contains, such as wage deductions and earnings.
Well, you’ve come to the right place. In this post, we’re going to cover different parts of a paystub. According to the Fair Standards Labor Act (FSLA), employers must keep a record of the number of hours put in by the employees and wages paid.
But they aren’t mandated to share these details with their employees. For this reason, state laws (such as Colorado) require employers to provide pay stubs, at least once a month.
Let’s learn how to read a pay stub below:
How to Read a Paycheck Stub?
Different parts of a pay stub include:
- Earnings: Your wages earned including overtime. Pre-tax deductions such as retirement contributions, health insurance, and employee benefits show up here.
- Deductions: Any additional deductions besides taxes such as disability insurance or group life insurance.
- Withholding number: It refers to the money taken out of your paycheck for worker’s comp, unemployment insurance, social security, state income taxes, and federal income tax payments.
- Personal information: This includes your filing status (married or single), personal information, withholding number, as per your IRS form W-4.
Understanding Pay Stub Deductions
Here, we explain the pay stub deductions in detail to help you learn how to read a paycheck:
Every working individual in the United States is required to contribute 1.45% of their income to Medicare. It’s a health insurance program designed by the government to provide surgical, medical, and hospital benefits to seniors as well as people with disabilities.
Federal and State Income Taxes
The Internal Revenue Service (IRS) requires you to pay a certain portion of your salary to the federal government. These are called federal taxes. Your income determines your taxes, speaking in broad terms.
Apart from federal income taxes, an amount for state taxes is also withheld from your paycheck.
About 6.2% of your gross income goes to the Social Security Fund. Besides, the employer contributes the same percentage for each employee.
Given that you’ve signed up for life, dental, or medical insurance through your employer, this will be taken out of your wages as well.
Retirement Savings Plans
According to the 401K plan, these are retirement savings deducted from your pre-tax salary every month. You can choose the percentage you would like to contribute to the retirement savings plan.
Now that you’re familiar with the basics, generate pay stub in minutes here.
Health Savings Account
You can set aside a dedicated health savings account for medical expenses. Contributions to this account are taken out from your pre-tax income.
Learning how to read a pay stub is important for managing your money. You should make it a habit of checking it regularly. Deductions, taxes, and earnings are three major parts of a paystub.
Whether you’re a freelancer or a salaried employee, keeping track of your income and deductions would help you plan your expenses better. Use our expert paystub generator to assist your business!