Looking at all of the codes on your pay stub can be like understanding a foreign language. You know that the codes mean something, you just don’t know what.
Why is it important to know how to read your pay stub? First of all, you could have mistakes. About 82% of employees have noticed an error in their paychecks at one time or another.
Secondly, you could be paying more or less in taxes, either giving the government a loan or you wind up with a huge tax bill.
Check out this pay stub explained guide, which will outline all of the codes and take the mystery out of your pay stubs.
Your paystub will start off with the most basic information. You’ll have your information, such as your name and address listed.
It’s important to make sure that your address on file is correct at all times. Your employer may mail documents like benefits renewal information and your W-2 form.
Your W-2 form is required to file your taxes. If your address is incorrect, your W-2 could be sent to the wrong address. That can keep you from filing and getting your refund faster.
Pay Stub Explained: The Pay Stub Codes
Once you confirm that your name and address are correct on your pay stub, you can move on to reading your pay stub codes. These are the main codes that you need to learn about.
The pay period is the beginning and end dates that cover your paycheck. Some employers pay on a bi-weekly basis, others monthly, and some on the first and third Fridays of the month.
Double-check the dates to make sure that your dates are correct.
This is the total amount of money earned during a pay period.
It’s calculated using your hourly rate times the number of hours worked. For salaried employees, your gross pay is calculated by taking your annual salary and dividing it by the number of pay periods.
There may be separate lines for overtime pay, sick days, or vacation pay. Every company has its own terminology and codes.
You’re likely to come across PTO for paid time off, VAC for vacation, and OT for overtime.
This is commonly coded as FED or FITW. This is the amount of federal taxes withheld and that number will be determined by a few factors.
The amount of income taxes withheld depends on a lot of factors. The first is your income. America has a progressive tax system. The more you earn, the more taxes you pay.
The tax rates range from 10% – 37%, and they change every year to adjust for inflation.
The second factor is your tax filing status. Someone who files their taxes as a single person has a different withholding rate than someone filing jointly.
The IRS issues guidance each year as to what the withholdings are for taxpayers. You’ll want to read it and get an idea as to where you fit in.
You filled out a W-4 before you started working for your employer. Some of the information there can impact your withholdings, such as the number of dependents you have and your spouse’s earnings.
State taxes are also withheld from your paycheck. How much depends on the tax system in your state and your annual income.
For example, Massachusetts has a flat income tax rate of 5.05%. You may live in a state that has no income tax.
What Does FICA Mean?
FICA means Federal Income Insurance Act. This is a law that requires a percentage of your check is withheld and applied towards Social Security (6.2%) and Medicare (1.45%).
FICA may be coded as OASDI, or you may see separate lines listed for SS and MED.
Most of your deductions will come from state and federal taxes. The best way to find out exactly how much is and will be deducted from your check is to use a paystub generator.
This will help you figure out what your withholdings are. If you see any discrepancies, you can then take them to your employer to sort out.
Your employer may be generous and offer a great benefits program. If so, you’ll have more codes listed on your pay stub.
For example, you may participate in your employer’s 401(k) retirement plan. That would most likely appear as 401(k). An IRA plan would be listed as such as well.
Most Americans get their health insurance through their employers. Since health insurance premiums are so high, employers rarely cover the entire cost.
Your share of health insurance comes out of your paycheck. How much comes out depends on your plan and the percentage you are supposed to cover.
Your net pay is the final amount of your paycheck and it’s what you receive in your bank account. This is your gross pay minus all of the deductions listed above.
Understanding Pay Stubs
You always want to make sure that you receive the amount of money that you earned, and you pay enough in taxes. Your pay stub has the information you need to do both.
Your pay stub explained holds the key to learning about your earnings and all of those deductions. That’s how your net pay is determined. That’s the amount that is entered into your bank account.
It’s important to read your pay stub carefully each time you get paid to ensure accuracy and correct any errors as soon as possible.
For more articles to help you get the most out of your money, click on one of the sections above.