Understanding Your Pay
It’s National Payroll Week - a time to celebrate employees. It’s also the perfect time to take a look at your paystub to make sure you understand the fine print. Here are some things to review the next time you get paid.
- Are you saving automatically?
Saving automatically is one of the most effective ways to save. Each time you get paid, your savings will increase and you’ll be less likely to spend the money that could boost your savings.
Setting up automatic savings is easy. Speak with your employer’s human resources or payroll department to set up a direct deposit into your savings account. Assess your finances to determine how much money you can comfortably afford to set aside, and fill out the paperwork to automatically deposit that amount into your savings account each time you get paid.
Once your direct deposit is activated, you’ll begin to see these deductions in your paystub. Think of automatic savings as a way to set it and forget it; you’ll never miss a savings deposit again and you’ll be one step closer to your savings goal each pay day. >> Learn more about automatic savings.
- Do you know the difference between net and gross income?
Have you ever multiplied your hourly rate by the number of hours you’ve worked to calculate your paycheck? This is a common way to get a ballpark estimate of your pay, but when you receive your check, it’s always less than you anticipated.
This is because the total you calculated is actually your gross income. Your gross income is the amount of money your employer pays you before taxes are deducted. The amount you actually receive in your paycheck is your net income. Your net income is your earnings after Social Security and Medicare (FICA) and federal and state taxes have been deducted. >> Learn more about National Payroll Week.
On your paystub, you’ll be able to see your gross income listed. You’ll also see your gross year-to-date (YTD) earnings. You should also see a “withholdings” section that shows exactly how much money was deducted. You’ll be able to see the total withheld this pay period, as well as the total that has been withheld YTD.
To ensure that the correct amount of taxes is being withheld per pay period, look closely at your withholdings under the “filing status” for your federal and state income taxes. If you’re a single person and you do not plan to claim anyone on your taxes this year, you should see “S 1” as your filing status.
If you see that your filing status is inaccurate, be sure to consult with your human resources or payroll department to get this squared away. Your HR representative will provide you with a new W-4 form so you can update your filing status and the IRS can deduct the correct amount in taxes. This will help ensure a smooth process when you apply for an income tax refund next year.
If you need help determining how much the IRS should withhold from your pay, use the IRS calculator.
- Are you saving for retirement?
When it comes to planning for your future, late is better than never, so don’t feel badly if you’re getting a late start. There are always options available for you, at any age.
If you don’t remember if you’ve already signed up for a 401(k) retirement savings plan with your employer, you can check your paystub to find out. Look at the “deductions” section of your paystub. If you’re saving for retirement through a 401(k), you should see it listed there telling you exactly how much money was set aside this pay period. You may also see how much has been saved towards retirement to date.
Be sure to talk with your payroll representative about adjusting your contributions if you’d like to save more aggressively towards retirement. If you’re not already enrolled in a 401(k), find out if your employer offers a retirement plan and sign up.
Even if your employer doesn’t offer a 401(k), you can save for retirement individually, using an individual retirement account, or IRA. You can opt for a Traditional or Roth IRA, depending on if you’d like to deduct taxes now or later. >> Learn more about saving for retirement outside of work.
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Are you keeping tabs on your paystubs? Check out these pointers to review the next time you get paid v/@AmericaSaves! https://bit.ly/2oQFTaw
- Written by Darlene Aderoju
- Category: Blog
- Published: 07 September 2018