Understanding Your Paycheck Stubs
One of the key elements of financial planning is understanding your paycheck stub every pay period. Your stub contains vital information that doesn’t only include how much you were paid and many taxes were deducted. There’s also valuable information about exactly how many tax allowances you claimed, how the deducted taxes were broken down, and elements of your employer benefits, such as retirement plan contributions. These are all important things to keep track of, and although you can as your human resources department for the info, the pay stub is an easy reference point. Here are three essential elements of the pay stub you should understand.
Claiming AllowancesAllowances are the exemptions you claim on your IRS W-4 form during the tax year. If you’re single with one job, for example, you should only claim one allowance. If you’re head of household and you’re responsible for dependents, then you get two allowances. The more allowances you claim, the less taxes are deducted. However, this also means that you’re more at risk to underpay at the end of the year when you sit down to do your income taxes. Your pay stub shows how many allowances you claim right at the top. If you’re worried about how many allowances you claimed, consult the IRS’s website and the form worksheet. Compare the qualifications of allowances against the number listed on your paycheck. If it seems to match up with what you should be claiming, you’re probably fine. On the other hand, if you find that there’s a mistake, simply fill out another W-4 at any time in the year and submit it to your employer. This will adjust the allowance accordingly.
There are plenty of deductions you can claim on your taxes that are also listed on your paystub. This is a good way to keep track of what items you deduct from your paycheck pre-tax, since it lowers your tax bracket at the end of the year. For example, if you buy into a pre-tax transit plan that allows you a monthly public transportation pass, this will be pre-tax. In other words, the amount deducted from your paycheck for this special program won’t be included in how much you’re actually paid. The more programs like this you take advantage, the less technical income the government can tax you on. Another popular one is an FSA or HRA account, which puts aside an amount of money you designate at the beginning of the year for healthcare costs in a special fund.
Vacation Time and Other Employer Benefits
Depending on how you accrue vacation, sick time, and any other employer benefits you receive, you might be confused about where to find the amounts. When you receive your pay stub, these balances will most likely be listed under an accrued time section. This provides you a way to plan your vacation out for the year, since you’ll be aware of how much you actually have. To find out how much time you actually accrue, you should consult your employee handbook. Usually the way that paid time off is accrued is based on your job classification and supervisory rank.