Understanding Your Paycheck – Daily Retirement On TheStreet: Finance and Retirement Advice, Analysis, and More
By Tina Wood-Wentz
What’s your payroll?
Your payroll is a document that describes what money you have made over the Pay Period and year to date, and how that money has been allocated.
When you got your first part-time job as a teenager, your payroll was pretty straightforward – you got an hourly rate for about a dozen hours a week, and there was a check on the bottom that you ripped off and left with your banking institution. Aside from receiving the total expected amount in dollars, this document was so simple and intuitive that you probably ignored it.
But maybe you have a professional job now and things have gotten more complicated. Large! That’s why we’re here to help.
Depending on your earnings situation and your employer, this document can now contain a lot of additional information. In contrast to your tax forms, there is no standardized format for a pay slip, which makes it difficult to keep an overview. Your employer can also provide two different types of pay slips for each payment date: one with only the information relevant to that payday and one with information about that payday in addition to all information for the year to date (YTD). Take a look at your own payroll, then do an internet image search for payroll to get an idea of the plethora of options available.
What are the headings on your salary slip?
At the top of your payroll should be the name and address of your employer, your name and address, your net salary, a check number, and the date of payment. It can also include part of your Social Security number and an employee number, along with a statement that this net wage is non-negotiable.
What should you be looking for?
First, look for your earnings. This line or section should include the number of hours you worked during the pay period and the amount earned from that work. If it doesn’t also include your hourly wage, you can calculate that hourly rate by dividing the amount earned by the hours worked to get your hourly dollars. Especially when you start a new job or just got a raise, make sure to double-check your hourly rate or dollar amount per pay period, as you expected. Nobody is as motivated to make sure you get paid the right way as you are!
Second, look for what sections your payroll is broken into. There is no standard layout requirement for the presentation of all components of payroll, so this part varies widely. It can be broken down into sections and subheadings, such as:
· Summary – Total gross is the amount earned. The sum of benefits in kind is the amount of benefit that your employer provided that you could not pay into the bank, but that was considered a taxable benefit. A common example is the value of employer-paid life insurance for policies over $ 50,000.
· Earnings – Regular is your regular salary. Paid time off or vacation or sick leave applies to all hours of this nature that you used during that payment period. The FLSA Flat Rate is a non-discretionary, flat rate bonus that has special federal tax withholding requirements under the Fair Labor Standards Act.
· Taxes – Your federal taxes withheld are based on the W4 that you submitted to Human Resources. If your state levies income tax, your state taxes have been withheld based on a similar state-specific form. Employee payroll tax for Social Security is a constant 6.2% for the first $ 142,800 in 2021. This threshold is known as the social security wage base. Medicare salary tax employee’s rate is 1.45% with no cap, with an additional 0.9% Medicare tax added to income over $ 200,000.
· Pre-Tax Deductions – This section is very useful in seeing what types of tax-deferred accounts and benefits you are currently enjoying. Now, if you are looking to reduce your current taxable income, this is the section you want to maximize! Additional perks of this section – you can see if you can deposit the expected amount across different accounts for the year (z-choice) and make sure you are signed up with the health insurance company you thought you were , or check the name of the insurance company if you are not sure.
Post-Tax Deductions – These are choices you have made that are not current (and possibly never) tax savings, but rather things you will pay off your paycheck. Roth 401 (k) / 403 (b) posts would be an item in this section.
· Company Deductions – This is the amount that your company has deposited in matching funds into your defined contribution retirement account. While you feel that this section should include your company’s pension contribution, it is not. This is because pension contributions are defined benefit and non-defined contribution benefits, so it is not shown here.
· Automatic deposit payouts – How much money is sent where by direct deposit.
Other forms of organization are possible, but regardless of the organizational system in which your payroll is arranged, the same parts should be present if they are relevant to your situation.
What else could be on your pay slip?
Some employers report your vacation or PTO credit, your sick leave credit and / or your short-term disability credit. You could even describe these in three categories: hours used during this period, hours accrued (earned) during this period, and credit remaining.
Depending on your employment situation, your payroll may be attached to an actual paycheck. But for many whose businesses only deposit direct, your money is already on the way to your bank or credit union by the time you get your payroll.
There are several reasons to save a copy of your most recent pay slip for the year.
· For your tax documents: Unfortunately it is possible that a wrong W2 will be issued. The only way to tell if your W2 is wrong is to compare it to your last pay slip of the year. However, don’t expect an entry-to-entry match between your payroll and your W2.
· For your 401 (k) contribution: Because of the time of payment by your employer
upon arrival at your 401 (k) depository, the contribution amount for the for
Calendar year can be reported incorrectly by your custodian bank. How much you paid in within a tax year depends on your employer’s payout date.
· For your 401 (k) match: If your employer provides a match for your 401 (k) contributions, you can work out whether you earned the expected percentage and see what that dollar amount is.
o Exception – This part only works if your employer matches on a paycheck-by-paycheck basis. If your employer offers a true-up for their game after the calendar year, that’s great, but then the information on your last paycheck of the year may be incomplete as the true-ups usually close in the first quarter of the following year.
· Calculating your total tax rate: It can be instructive to take the total federal income tax (1040 line 24) and total state income tax on your tax returns, add your withheld Social Security and Medicare taxes as listed on your payroll, and add that total through yours to divide total gross income.
The total remuneration statement
In addition, some large employers continue to provide their employees with a full statement of remuneration long after the year ends. Because an aggregate pay slip contains more than what would appear on your pay slip, this document contains additional information and should also be studied carefully. It can include:
· Amount paid in the year. Possibly also hourly rate.
· Medical services to be borne by the employer and the employee.
· Flexible spending accounts or savings accounts, such as B. Health Savings Accounts (HSA), Flexible Healthcare Spending Accounts (HCFSA), and Dependent Care Flexible Spending Accounts (DCFSA).
· PTO, vacation, sick leave, military cash, jury cash, and any other type of paid vacation.
Retirement benefits such as 401 (k) / 403 (b), the match amount paid on your behalf, and retirement contributions.
· Life insurance
· Disability insurance
· Wellness benefits, including an Employee Assistance Program (EAP).
· Educational support programs
· And any additional benefits that your employer has made available or has made available to you.
Your payroll can be very telling about the pay and benefits you receive from your employer and the tax implications you have each year. Did you check that your current salary rate was what you expected after your employer announced your latest raise or lower salary? What new information can you get out of yours?
About the author: Tina Wood-Wentz
Tina Wood-Wentz wants to help you understand your financial situation and use your money as a tool to feel more secure in your life. She is a finance educator, paraplaner, and founder of Wood Financial Services LLC. With an extensive background that includes whitewater kayaking instructors, data scientists, accountants, and board members for many nonprofits, Tina brings a passion for understanding numbers and helping and educating others.
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Email Jeffrey Levine, CPA / PFS, Chief Planning Officer at Buckingham Wealth Partners to: [email protected]