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3 Key Tips for Understanding Your Pay Stub


Every person looks forward to receiving their paycheck. Whether it is weekly or biweekly, getting paid is a great feeling for workers.

However, did you know that roughly 82 million Americans have experienced a paycheck error? This number is likely even higher as some workers do not review their paycheck stubs. Many people simply verify that pay hit their bank account and move on.

The truth is that you should thoroughly check your stub on every payday. Read on to learn how to decipher your pay stub. Explore 3 important tips for understanding your pay stub.

1. Gross Pay

This is the most important part of your paycheck stub. It is the foundation for how much take-home pay is received.

Gross pay is dependent on a few different factors. The first is your pay rate. This is typically determined on a per hour or project basis.

If you are paid hourly, the number of hours worked comes into play. Each paycheck, you should verify that the pay rate and hours worked are accurate.

Some employees receive sales commissions, bonuses, or tips. Gross pay is a summary of all income received prior to any deductions taken out. If gross pay is not calculated properly, other elements of the pay stub are also incorrect.

2. Tax Deductions

After your gross pay is tabulated, the taxman comes to take his cut. There are many different taxes that are assessed on a paycheck stub.

Both federal and state governments take a percentage of your pay. The amount taken is based on the withholdings you claim. For federal income tax, a W-4 form is completed when you start a new job.

Next, the federal government takes out a significant fraction for FICA taxes. The payroll deductions fund the government’s Social Security and Medicare programs.

Each pay, 6.2% is deducted for Social Security. Another 1.45% is taken to pay for Medicare. Your employer matches the deductions to help fund these entitlement programs.

Depending on the state you live in, there may be additional government deductions. For example, unemployment insurance (UI) is a common payroll deduction.

3. Employee Benefits

Lastly, contributions to employee benefits are deducted. Health insurance premiums, for instance, are common payroll deductions. Dental and vision insurance falls in the same category.

A retirement savings account is another example of an employee benefit. Here, the employee makes a contribution to a 401(k) plan as a percentage of gross pay. Often, the employer matches this contribution up to a certain amount.

Some employees deduct a portion of pay for a Health Savings Account (HSA). There are many different forms of employee benefits and all reduce your gross pay.

The final amount is your net pay after taxes and deductions. This is the dollar value that is directly deposited into your checking or savings account.

A Recap of 3 Tips for Understanding Your Pay Stub

There is a lot going on when reading through a paycheck stub. Various deductions and employee benefit contributions bring down your gross pay.

It is important that you review each deduction to ensure there are no errors. If you enjoyed this article about understanding a pay stub, check out our blog for more great content.

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