Credit Counseling Services Overview
How Credit Counseling Works How the Debt Management Program Works What Our Services Cost
Financial Tips
Budget Vacations in Your State Ways to Save Money How to Improve Your Credit Managing Credit When Your Life Changes
About Us
Client Testimonials
Group Presentations
Tools and Calculators
Ask an Expert

Saving Every Day - How to Read Your Paystub

If you are like most people, your paycheck means only one thing-money in the bank! But if you find yourself living paycheck to paycheck and need to improve your money management skills, you need to pay close attention to the other perforated portion of your paycheck-the pay stub (also known as the explanation statement.) Educating yourself on how to read your pay stub and understanding the information it contains can play a vitally important role in effective money management and proper budgeting. Knowing where your money is going can help you stay on top of your finances and make the most of your hard-earned paycheck.

What is Included on a Paycheck Stub?

Although every company prints paychecks that are unique in their own way, there are some aspects of the employee paycheck that employers must include by law. Some paycheck stubs can be extremely detailed including such items as retirement plan contributions or accrued vacation time, and others will only detail the required information. The following items will appear on every paycheck stub and consumers need to fully comprehend their definitions and value:

• Gross Pay: Includes the total amount of income that you earned during a particular pay period. A pay period is determined by your employer, but is typically bi-weekly or monthly. This figure does not factor in tax withholdings.
• Net Pay: Includes the amount of income that you actually take home after all withholdings have been applied. It is the amount of money that you take straight to the bank!
• Federal Tax Amount: When you were first hired by your employer, you were required to fill out a W-4 form. This form covers any tax that you may owe to the Federal government come tax time. It is deducted incrementally from each paycheck, and can vary depending on the number of exemptions you chose to claim.
• State Tax Amount: Depending on your state of residence, you may or may not be required to pay a state tax. Most states however, do participate, so this amount is deducted from your paycheck (the same way as Federal tax) to cover the amount of tax that you may owe to the state when your tax return is filed.
• Local Tax Amount: Although rare, a local tax is sometimes applied to employees of certain cities, counties or school districts. For example, if you live in New Jersey, but work in New York City, you will be required to pay not only New Jersey state tax, but also New York City tax on your earnings.
• Social Security: The Federal government requires every employee to have a certain percentage of their paycheck withheld for social security purposes. This entitles you to receive a monthly social security payment upon retirement. The amount is currently 6.2% of your monthly earnings (up to a maximum earnings of $94,200 in 2006). Under the Federal Insurance Contribution Act (FICA) your employer will also contribute another 6.2% toward this for a total of 12.4%. The annual percent withheld and the maximum earning is subject to annual increase.
• Medicare: Like social security withholdings, Medicare withholdings are also mandatory. Every employee pays 1.45% of their paycheck toward Medicare, and every employer contributes an additional 1.45% on behalf of the employee. Upon eligibility for social security, an employee is entitled to coverage for a majority of their medical expenses.
• Year-to-date (for pay and deductions): The year-to-date fields on your pay stub show how much you have paid toward a particular withholding at any point in the calendar year. This can be useful when budgeting for monthly expenses or long-term goals.

Additional Items that May Appear on Your Paycheck Stub

Although not required, the following are items that may appear on your paycheck stub and are useful to money management and relevant to your employment status.

• Insurance Deductions: Monthly payments for such types of insurance as health (medical and dental), and life insurance.
• Retirement Plan Contributions: Plans such as 401K or 403(B) retirement savings plans.
• Leave Time: Including vacation hours or sick hours. Most employers will detail how many hours have been used to date, and how many hours are remaining for the calendar year.
• Childcare Assistance: If offered by your employer, this amount may appear on each paycheck as a pre-tax benefit.
• Important Notices: Employers often use a portion of the paycheck stub to communicate important pieces of information to their employees such as wage increases or notifications about tax filings.

Common Abbreviations Used on Paycheck Stubs

• YTD: Year-to-Date
• FT or FWT: Federal Tax or Federal Tax Withheld
• ST or SWT: State Tax or State Tax Withheld
• SS or SSWT: Social Security or Social Security Tax Withheld
• MWT or Med: Medicare Tax Withheld

Exercise Good Money Management Skills - Be Proactive

If you need further explanation on any portion of your paycheck or if a particular calculation doesn't seem correct, consult your Human Resources Department for assistance. Don't procrastinate! Exercise good money management skills by being proactive. If a calculation is incorrect, the issue may reappear on every paycheck. Also, you may not be making the best choice for a retirement plan contribution, or losing money if your earnings are not calculated properly. It is ultimately your responsibility to ensure that you are being properly compensated.

Money Management Help from ClearPoint Financial Solutions

We all work hard for our money, so it is important to make sure that we can account for every penny. Educating ourselves on all aspects of our money matters, and knowing how to budget accordingly is the only way to ensure that you will live a healthy, stable financial life. Professional advice from ClearPoint Financial Solutions can assist consumers with learning more effective money management techniques. If necessary, our agency can also help consumers reduce their debt burden through a customized money management plan and get back in control of their finances once and for all.