How to Read Pay Stubs, the Easy Way

There are few days more exciting than payday. However, plenty of us have opened the pay stub in our mailbox or email inbox only to find that we can’t make heads or tails of it.

In the US, employers are required by law to provide paystubs. The law also requires that employers provide a certain amount of information so that employees know exactly where their money is going.

Knowing how to read pay stubs is essential for anyone trying to budget, do their taxes, and simply understand what they are paying in deductions. If you’re trying to figure out how to read paycheck stubs like a pro, we have got you covered. Read this handy guide to find out.

Why You Need to Know How to Read Pay Stubs

You might think that knowing how to read a paycheck stub is irrelevant, as long as your net pay lands in your bank account.

However, this is a dangerous assumption to make. Your pay stubs are by far the most reliable way to track how much you are paying in taxes, retirement, and healthcare.

Without this essential knowledge, preparing for the future can be difficult. What’s more, any errors in your paystubs are your responsibility to report.

Failure to spot errors can result in your paying too little tax, or too much for healthcare. Pay stub samples are available here so you can get to grips with the essential information you need to look out for.

Pay Stubs Deductions Explained

First of all, let’s get down to deductions. You have probably looked at the difference between your gross pay (your pay before deductions) versus your net pay (the amount that actually lands in your bank account) and been confused. Your paystubs will list all of the deductions that come out of your base pay. These typically are:

  • Federal taxes: the amount of income tax paid to the Federal government
  • State taxes: the amount of local taxes owed to your state
  • Social security: your required contributions for social security, usually equal to 6.2% of gross income
  • Medicare: this is 45% of your income that all workers pay to cover the cost of Medicare
  • Retirement: automatic contributions to your retirement savings plans

Pay Stub Personal Information Explained

It also helps to be able to pick out the essential personal information that all pay stubs should include. This is pretty clear-cut and obvious and includes:

  • Your name and home address: you guessed it, your full name and where you live
  • Your company name and address: the registered name of the company you work for and the address of where you work
  • ID number: an identifying number that could either be your employee ID or your social security number
  • Pay type: This should either say “hourly” or “salaried” depending on how you are paid

More Business Advice at Your Fingertips

Now you know how to read pay stubs. This is all of the essential information that you will find on a pay stub, but some stubs may include additional information such as insurance contributions.

Either way, knowing your pay stub is essential for financial success. Explore some of our other articles for more essential advice on how to succeed in business and build a sustainable financial future for yourself.

 

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