Your pay stub contains a wealth of information. Major financial tasks like federal and state income taxes are dependent on your pay stub withholdings.
Did you know that one-third of Americans are unsure whether they will receive a tax refund? The first place they should look is their pay stub.
Whether it is employee benefits or government entitlement programs, your salary is split up in many different ways. Read on to learn how to read pay stubs. Explore five reasons you should be checking your employee pay stub.
1. Income Taxes
When you start a new job, one of the first things an employer asks for is to complete a W-4 form. This is an Internal Revenue Service (IRS) form for tax withholdings.
Both employer and employee alike are responsible for paying income taxes. The W-4 form helps determine how much money the employer should withhold from its employees each pay period. This money is then sent to the Treasury Department.
Each state also has its own process for income tax withholdings. A pay stub maker is going to show exactly how much money is withheld for taxes. This data is critical for income tax planning and to make sure you are withholding enough.
2. Health Insurance
Americans contribute nearly $4 trillion towards health care spending each year. Health insurance premiums are a major portion of this expenditure.
The average monthly premium for an individual is just under $500. When an employer opts to make a pay stub, they will show health care contributions to the employee.
The employer must show the employee’s premium. This is one of many withholdings that result in the employee’s take-home pay. They may also show their share of the premium as well.
3. Payroll Taxes
Other deductions you see on an employee pay stub are from the Federal Insurance Contributions Act (FICA). This federal legislation is a payroll tax to fund Medicare and Social Security.
For Social Security, 6.2 percent of your gross pay is deducted. An additional 1.45 percent is deducted for Medicare. Your employer is legally required to match these employee contributions.
4. Paid Time Off
Many employers issue paid time off (PTO) to their employees each pay period. This is something that you can check on the employee pay stub.
There is likely a breakout between vacation and sick time. The pay stub shows how much PTO is used and accrued.
Startup companies need to decide whether to include this PTO breakout on the pay stub. The ultimate paystub maker for your startups provides this flexibility.
5. Other Employee Benefits
There are other employee benefits that may be deducted from your wages. These benefits include items like dental or life insurance.
Some employers offer retirement savings accounts. Depending on what type of retirement plan it is, the deduction may occur before or after taxes.
5 Reasons to Check Your Pay Stubs
Clearly, your paycheck is more complicated than multiplying hours worked by the pay rate. Instead, there are many deductions that impact your take-home pay.
Items like income tax withholdings and employee benefits make a big difference. If you enjoyed this article about five reasons to check your pay stubs, check out our blog for more great content.