How to Read Your Pay Stub?

A pay stub is essentially a paper document issued to an employee by an employer for his/her rendered services. There are many types of stubs used by the organizations. In the recent times, the use of stubs has been replaced by the direct deposits through bank accounts; however, employees still receive pay stubs.

In short, a pay stub is a document issued to an employee to serve as a notice that his/her direct deposit transaction has been met through. Many organizations also attach the stub to the pay checks of the employees.

A pay stub generally includes the amount of gross income, deductible income tax and other deductibles. These deductions include pension contributions, retirement plans, insurances, charitable contributions and garnishments. All these amounts are deducted from gross income, resulting in net income. Some stubs also include the accumulated amount of totals in certain circumstances.

For many people, a pay stub is a general document that only ensures them their money has been transferred. If your stub is a more a matter of finances and you want to improve your finance management skills, you should pay attention to other perforated aspects of the stub.

Understanding the basics of your finances will help you in effective finance management and make the most out of the hard earned money. Below are some components included in your stub which you should be able to comprehend as an employee.

1. Gross Pay
It comprises of total income amount earned during a specific pay period. The pay period is usually, bi-weekly or monthly; however, there can be other modes as well. Gross pay is exclusive of tax withholdings.

2. Net Pay
It includes the actual income amount that you take away after withholdings.

3. Federal Tax Amount
Upon successful induction, you were asked to fill out the federal tax form. This form indicates any taxes you owe to the federal government. Your employer deducts this amount each time from the pay stub.

4. Social Security
According to the Federal government, every employee should retain a specific amount of their paycheck for social security purposes. This entitles the employee to receive a social security payment upon retirement.

5. Local Tax
This amount is rarely paid. It is applied to the employees of specific cities, school district or counties. For example, if you live in New York City but work in New Jersey, you will have to pay New York state tax and New Jersey State tax as well.

6. Medicare
Medicare withholdings are compulsory in a pay stub just as the Social Security withholdings. Each employee is required to pay 1.45 percent of the stub amount to contribute towards Medicare, while the employer also contributes the similar amount of money on behalf of the employee.