Pay Stub

Reading Your Paycheck and Tax Deductions

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When was the last time you looked at your pay stub? Direct Deposit is an amazing thing. Unfortunately, it also promotes complacency.  All you see is the net pay deposited in your account but that is not all the money you earned. If you got paid in a roll of cash, no doubt you would have a more emotional connection to all the pieces of that roll you gave away. With direct deposit, we simply get used to a nice number added to our checking account on payday. It is a dangerous behavior we all need to break. You really need to know where all your money is going.

Where is my pay stub?

There is a good chance you don't even know how to look at your pay stub.  That is because it is probably on some website you never logged into or forgot the password to. You probably didn't even bookmark the site.  And to get the address you have to go to your company's intranet which you also forgot the password to! And IF you get the url, every time you even try to login you get frustrated with the password recovery process and just give up. Sound familiar? YOU ARE NOT ALONE. Don't give up. Do what you need to do. This is super important. Would you give up if you lost the keys to your house, apartment, or car?

Where is all my money going?

This is an example Pay stub I pulled from the internet. This example is a very good representation of most people's paychecks. However, I would say the 401k contribution is a bit high in this example, which is a great thing if you can do that.

 

Right off that bat you may not understand everything on the stub. So you could be tempted to not ask. Bad idea. I am going through each item on this pay stub. I created a spreadsheet and Piechart (mmm pie) to match this example. This list below is a little easier to read. I also clarified a few things like "Flex" and "Ltd". I bet you didn't even know you pay for Long-Term Disability! You should know because you may need it. And if you don't have disablity insurance, think about it.

Here are some things you should notice when reading your paystub.

  • Gross Pay: What you actually earn and worked so hard for
  • Federal Income Tax: You should be aware of what you are paying in taxes. It is your money
  • Social Security Tax: You should be aware of this since you will be entitled to a check some day.
  • Medicare Tax: Everyone has to contribute and there is a very good chance you will depend on this at age 65.
  • State Income Tax: You should be aware of what you are paying. It is your money
  • Dental Insurance: This is what it costs you. Are you using it? I hope so. Is it worth it?
  • Flex Dependent Care (FSA): This is pre-tax dollars you can set aside child care. Do you understand how it works? Did you know you could lose what is leftover at the end of the year?
  • Flex - Medical Care (FSA): This is pre-tax dollars to use for medical expenses. Do you understand how it works? Did you know you could lose what is leftover a the end of the year?
  • Ltd Imputed (Long Term Disability): Do you even know how much coverage you have if you need to use this? You chose to pay for it. Or maybe you thought you had it and you dont!
  • Medical Insurance: Are you happy with your plan? Have you checked all options during open enrollment time? Does your partner have better options?
  • 401k: Are you really putting money towards retirement and how much? Have you even logged into your 401k account recently?
  • Net Pay: This is what is left over. Just a fraction of what you actually earned.

 

Who ate my pie?

The green areas actually go in your pocket one way or another. But look how much of the pie is removed before you get that nice direct deposit! So if you haven't done so, please figure out how to review your pay stub this week.

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