Understanding the information in your paycheck stub

— The amount of money you’ve earned during a given pay period before deductions and taxes. Direct deposit may or may not be required by your employer, depending on which state you work in. Think about which payment method works best for you and helps you the most in managing your money.

If you need to pay state taxes, they are calculated in much the same way as federal income taxes. Sometimes, the amount of federal income tax deducted from your earnings may be too high or too low.

Other Earnings

Ideally, you should have an amount withheld that is as close as possible to the amount you owe. Although it’s convenient to have your paycheck direct deposited into your bank account, remember to still review your paystub on a regular basis, and confirm that it’s accurate. If your employer doesn’t take taxes out, then you’ll need to manage those payments yourself. Typically, that means making quarterly estimated tax payments. You’ll also pay both the employee and employer portions of the taxes for Social Security and Medicare.

A W-2 is a form your employer sends you at the end of every year. Your W-2 also says how much money was taken out of your paycheck for taxes during the year.

Flexible Spending Accounts and Health Savings Accounts

And, if you learn little by little, the whole process doesn’t have to be overwhelming. Nick Menghini, a sales assistant at Hearst Magazines, and Sanchez both said they invested in their respective companies’ 401 plans once they started working. “​​I have a lot of clients regret not starting with their Understanding Your Paycheck Withholdings first job because they would have so much more money if they didn’t start in like their third or fourth job,” she said. For Ruby Sanchez, an administrative assistant to a financial advisor in New York City, being able to stay on her parents’ plan was helpful when transitioning into full-time work.

• For this program, every worker contributes 1.45% of their gross income (there’s no income cap for this tax), and every employer pays an additional 1.45%.
• It pays for state programs such as education, health and welfare, public safety, and the court justice system.
• As a result, California residents will see different SDI paycheck deductions in 2022.
• You’ll also see tax deductions for two government-run programs; Social Security and Medicare.
• Kirsten Rohrs Schmitt is an accomplished professional editor, writer, proofreader, and fact-checker.

The last thing you want is for an error to be repeated through several pay periods. If you have questions about any of the information listed on your pay stub, be sure to contact your payroll provider.

Be in charge of your financial future.

She has expertise in finance, investing, real estate, and world history. Kirsten is also the founder and director of Your Best Edit; find her on LinkedIn and https://turbo-tax.org/ Facebook. Save time and reduce errors with IRIS FMP’s centralized payroll reporting and process system, giving you one single view of your global payroll.

Trust Company of Delaware (collectively the “Bank”) do not serve in a fiduciary capacity with respect to all products or services. Trust and fiduciary services are provided by wholly owned banking affiliates of BofA Corp., Members FDIC including Bank of America, N.A. The amount on your actual paycheck may be less than you expect. Sign Up NowGet this delivered to your inbox, and more info about our products and services. You would be surprised how being smart about money can snowball through the rest of your life.

Understanding your first paycheck (and why it’s so much smaller than you thought)

Contact your employer if you don’t understand your statement or if your records don’t agree with the W-2. A flexible spending plan allows you to set aside pre-tax dollars for medical expenses including health insurance copayments, deductibles and prescription drugs. Contributions to a flexible spending account are deducted from your pre-tax income.