How to Read a Paystub
We all have too much information to digest, and you may not give the information on a pay stub a great deal of thought. However, it’s important for employers and workers to understand how to read a pay stub. The pay stub reports pay, tax withholdings, and other information that will impact your tax return.
For starters, let’s define a pay stub.
What is a Pay Stub?
When you review a pay stub, it’s important to note the difference between current (current pay period) and year-to-date (YTD) amounts. Both are important, and the YTD balances help the employer and the worker understand if the amounts are correct.
The pay stub provides information on wages, tax withholdings, and benefit withholdings.
The rules regarding pay stubs vary by state. Some states require employers to provide pay information to workers, while other states do not. Businesses should confirm the requirements in each state where they employ workers.
Filing pay stubs
Workers should keep their most recent pay stubs as proof of income. If an individual applies for a loan, the pay stub confirms the borrower’s gross income. Employers should keep pay stubs on file, if they are generated. The pay stub information should match the data on each employee’s W-2 form, which individuals used to file their personal tax returns.
Completing Form W-4
To create a pay stub, the first step is to have each employee complete a Form W-4. The Employee’s Withholding Allowance Certificate (Form W-4) is a form that the federal government requires employees to fill out when they are newly hired. Information submitted on the form (allowances) lets employers know how much salary to withhold from a paycheck for tax purposes.
Understanding the Details of a Pay Stub
When you read a pay stub, pay attention to these details:
- Payroll cycle: The number of pay periods determines how much salary is paid on each payroll date. It also determines the start and ending days for computing hourly payroll.
- Wages: Gross pay and net pay. Wages may be based on a salary, or calculated using an hourly rate of pay.
- Tax withholdings: Federal, state, and possibly local amounts withheld for taxes.
- Benefit withholdings: Amounts withheld for the employee’s share of insurance premiums, or funds to be invested in a retirement plan.
Here’s an example to help you visualize your pay stub.
Reviewing a Pay Stub Example
This pay stub was created using the Form Pro’s website. The process is simple, and far less expensive than hiring an accountant. Using the Form Pro’s website saves time, and is more reliable than using a spreadsheet.
The employee’s personal information is listed in the top left, and you see the pay period (weekly payroll), and the pay date at top right.
The worker’s gross earnings are listed next, and Form Pros calculates FICA and other tax withholdings automatically.
Finally, you’ll see year-to-date and current pay information listed at the bottom.
Employers need to generate accurate pay stubs, and using technology can help.
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