Here’s What Each Line of Your Paycheck Really Means
With the convenience of direct deposit, most of us never look at our pay stubs, but maybe we should. Whether you receive a salary or an hourly wage , your check contains important information and may reveal tax errors, accounting errors, or your employer not deducting your wages.
In fact, according to HuffPost , discrepancies in your pay are rarely some weird technical error, but instead a deliberate decision to “not pay an employee eligible for overtime, or not pay an employee as agreed, or cut someone’s work.” pay illegally. Here’s what you need to know to make sense of your paycheck so you can always make sure you’re always getting every penny you’re owed.
How to read your paycheck
Your pay stub has three main sections: (1) your paycheck, (2) your taxes, and (3) other deductions you make.
Your payment
In the Pay section, the numbers you see depend on whether you receive a salary or an hourly wage. Employees will see their salary for the pay period, and hourly workers will see their hourly rate and hours worked. It is important for hourly wage workers to keep a close eye on the reported number of hours, making sure that any overtime is also recorded.
If you’re only going to check one line on a check, make it Gross Pay (or Gross Earnings). This is the total amount of money you earned during your pay period. If the gross salary is wrong, you can assume that everything else on the check is also wrong.
In addition to gross salary, you will see a line for net salary . This is the amount you actually take home after your employer deducts taxes and benefits.
Something else to know: If you see “YTD” next to your salary, it’s the total salary you received from the beginning of the year to the end of the pay period on the check. If your employer owes you wages, look for a retroactive payment in the payroll arrears section.
Your taxes
The tax section of your pay stub looks more complicated than your paycheck, but it’s divided into three types of taxes: federal income tax, state and local taxes, and FICA.
- Federal Income Tax. This amount is deducted every pay period, not as one giant chunk when you file your taxes.
- State and local taxes, or SALT. Most state income taxes are deductible in the same way as your federal tax, although state tax rates vary considerably from state to state.
- Federal Insurance Contribution Act, which will be shortened to FICA. Both you and your employer must pay OASDI and Medicare taxes. (OASDI stands for Old Age, Survivor and Disability Insurance, also known as Social Security Taxes.) According to the IRS , the current base rate is 6.2% of your gross income for Social Security and 1.45% for Medicare.
Other deductions
In addition to all taxes levied on your gross wages, you will see other deductions that would normally apply to your workplace benefits:
Note. Some of these deductions may be “pre-tax”, which means they are deducted from your gross wages before taxes are applied, which results in you getting more money to take home.
What else do you need to know
If you have questions about any of the terms, check out the full IRS Glossary . And if you notice a problem with your payroll, contact your HR department. Protections like the Fair Labor Standards Act and state laws require your employer to be transparent about all of your pay, but mistakes happen – whether they’re nefarious or not. Understanding the information on your pay stub is critical to understanding where your money is going, but few of us are actually vigilant.