Ok so you get a paycheck. which is actually mailed to you, sent by email or handed to you by your arch-nemesis (your supervisor). Or maybe you are the person handing them out. Either way, the scenario is actually the same. You have in your hand or inbox a document showing you what you were paid. along with to some, quite mysteriously, there is actually money taken out of your earnings along with given to the government, or whoever, along with which reduces the amount which you have to shop, save, or pay bills with. which could happen to you every week, every some other week or each month. along with you take which money which is actually left over along with do with which whatever you chose. So why should you care where the extra money goes? which’s gone, right?
however here is actually the thing….where did which go? Did which go inside right amount? How does which affect you? Your spending habits, your budget, along with the way you save for the future? which’s gone, right? So who cares where which went, which’s not coming to you, right? WRONG!
I’m not going to be one of these people to tell you which you can’t afford things, or will ring bells along with make funny noises to indicate which something to do with your finances should be important to you. however I will tell you This specific – which’s your money along with you need to know where which goes along with why.
currently, most of us are savvier about money than say our mothers. (Sorry Mom!) Or we think we are. I was recently working with my mother going through her financial paperwork along with was surprised about the things I take for granted as common knowledge which she was not aware of. She is actually a smart woman, so I was a little surprised. So we might be ahead of our Mother’s generation in terms of being more financially independent, however ask yourself, where does the money which comes out of your paycheck go? Do you know? Do you know what all of those fancy little acronyms mean? along with why should you care?
First: the paycheck. along with yes, we are going to go through which line by line. however I promise which won’t be torture. We’ll make which quick along with then talk about why you should look at This specific every pay period along with how which affects you.
So, what should you look at when you receive your pay stub? You may not like my answer, however the answer is actually everything. Let me ask you a question. If you lost $141.63 coming from your wallet would certainly you care? would certainly you look for which money? Be honest with yourself, would certainly you panic? currently I am not saying which you have lost This specific $141.63 coming from your pay, however if you don’t know what which is actually or where which goes, which is actually as Great as lost.
So currently for the fun! Let’s go through This specific pay stub line by line to ensure which you can understand what you are being paid along with where those deductions end up.
The first box is actually Emp#. This specific is actually your employee number which is actually assigned through payroll. This specific one does not have relevance unless your HR department asks you to supply This specific to them as a routine part of how they identify you before speaking with you about a problem or question with your pay.
The next box is actually Company Name. which is actually important for you to know what the legal name of the company you work for is actually if you have an issue or a problem. An example of an issue or a problem which would certainly be affected by you knowing your company’s legal name would certainly be if you needed to apply for Worker’s Compensation or Unemployment. Again, why? Because these agencies refer to the company you work for by their legal name. If you do the same you will avoid confusion when dealing with them.
The next box is actually Period End date. This specific box is actually important to check because which states the period for which you are being paid. You may ask yourself, who cares? The answer is actually -you should. Does the amount being paid agree with the period which you worked for? In our scenario we have a salaried individual however if you were being paid by the hour, how can you know you have been paid for the hours you worked unless you know what period your employer is actually paying those hours for?
The next box is actually Dept#. Even I will admit which This specific one is actually not too important unless your employer deducts things coming from your pay for working in a specific department. For instance, in restaurants employers may deduct an amount coming from your pay for uniform maintenance or you might have a deduction coming from your pay if a department in which restaurant is actually allowed to eat lunch while working along with the employer deducts a flat amount for food costs.
Our next box is actually the mystery box! which says FW =M 01. is actually which an algebraic formula? is actually which something Einstein invented? No, This specific is actually actually an important box! The FW stands for Federal Withholding. The M stands for Married along with the 01 is actually the number of dependents which is actually being claimed on form W4. This specific box drives what comes out of your pay for Federal Withholding along with can determine the all important game of whether or not you receive a refund after filing your annual tax return or whether you will have to send money into the IRS.
What is actually important to know about This specific is actually which the Federal Withholding taken coming from your pay each pay period is actually based on a tax table. So the way This specific calculates is actually any payroll system will look at your gross pay, the frequency you are paid (weekly, every two weeks, etc.), along with what you claimed on your W4 to see how much tax to take coming from your check.
The tax table calculates based first on whether you are claiming the status of Single or Married along with then on the number of allowances you have claimed, in our case 01. The general rule of thumb is actually which Single claiming 00 allowances takes the maximum tax along with Married with more allowances takes less along with less tax. We will get further into This specific inside why you should care portion of This specific article.
Our next box SS# xxx-xx-0123 again looks something we learned in high school algebra. which’s not. which is actually your social security number. What do you need to know about This specific? You need to know which This specific is actually the way which should look on your check stub. Or which could look like: ***-**-0123. Or which could be all exes or all *s. What you should NEVER see on your check stub is actually your full social security number printed out.
Our next box is actually your name along with address. This specific one is actually only of concern to make sure which which is actually correct. Sounds simple. Make sure which stays simple. Your company may have different policies of how they get information to you. Most will mail at least your W2 form directly to you at the end of each year. So make sure your information is actually current to ensure which there is actually no disruption to you receiving important tax information. If you move, alert the appropriate person in your company as soon as possible to ensure which they can get your payroll records updated.
Under your name along with address are two boxes: check # along with net pay. The check number is actually not something which you need to look at. which is actually the check number assigned by your company. If you misplace a check or need to speak to someone regarding your check they can look up the information they need in their records. The net pay is actually the amount of pay which you will take home after taxes along with deductions have been taken coming from your pay.
Our next box is actually the earnings box. Stay with me here we are getting to the Great stuff! This specific box tells you how much you are being paid before taxes along with some other items are deducted coming from your pay. In This specific pay stub we have a salary amount (Sal1). However, if you are paid by the hour, you will want to make sure the hours you told your employer you worked along with the hours on your pay stub match. Mistakes can happen in processing payroll, they are not intentional. which is actually your responsibility to check your pay stub along with let your employer know if there was an error in reporting your hours to the payroll company.
some other types of earnings may include commissions, bonuses, along with even reimbursements for telephone usage, mileage or office supplies purchased.
The next box is actually labeled taxes. We are going to go through each item in This specific box to explain the different payroll taxes.
– FWH = Federal Withholding. We gave the example of This specific above when looking at the SS# box. This specific is actually your Federal Income Tax being withheld coming from your pay each payroll period.
– FICA = This specific tax is actually the Federal Insurance Contribution Act tax. which is actually taken at a flat percentage of 6.2% up to an annual earnings cap. These taxes are taken to provide a variety of benefits to qualifying workers along with their families through the program known as social security.
– MEDFICA = This specific tax falls under the Federal Insurance Contribution Act along with allows an extra 1.45% of your pay to be withheld for Medicare, which provides health insurance for qualifying disabled workers along with people 65 years of age along with older. There is actually no earnings cap with This specific tax.
– ST = State Withholding. Here in Pennsylvania This specific is actually a flat percentage tax. However, in many states the withholding works much like the Federal Withholding tax. which is actually based on what you claim on your state W4 form. Again the principle is actually the same, the tax table calculates based first on whether you are claiming the status of Single or Married along with then on the number of allowances you have claimed, in our case 01. The general rule of thumb is actually which Single claiming 00 allowances takes the maximum tax along with Married with more allowances takes less along with less tax.
– WCHPA = This specific is actually the local tax where my company in This specific example is actually located. In Pennsylvania there are thousands of local taxes. They range coming from.5% to the Philadelphia wage tax which exceeds 3%. The tax is actually based on where you are employed along with not where you live. The next state close to Pennsylvania inside number of local taxes is actually Ohio. Many coming from This specific area would certainly be surprised to know which many states have no local taxes.
– PA UNEM = This specific tax is actually the Pennsylvania employee share of unemployment. This specific tax can come along with go. In times of high unemployment percentages the State deducts This specific tax coming from employees to help offset the cost of the payment of unemployment to those who do not have work. some other states have similar taxes along with some also have employees contribute to disability along with state paid health care.
Next is actually our deductions box. There are two deductions here as an example of what you could expect to see.
The first deduction is actually labeled MED125. Med125 refers to medical insurance premiums which are deducted coming from your pay along with which are run through a Section 125 plan as defined by the IRS. What does This specific mean to you? If you have a health insurance premium deducted coming from your pay there are two ways to do which. One is actually a standard deduction which comes out of your pay after all of the taxes have been deducted. The some other is actually through a Section 125 plan. If your company has an established 125 plan then your health insurance deduction comes out of your pay before taxes along with is actually not subject to payroll taxes. If you are not sure what your company offers ask someone in your HR department. Using a Section 125 plan saves employees the cost of paying taxes on their health insurance contribution deductions.
The next deduction is actually labeled LST. This specific is actually the Local Services Tax for Pennsylvania. The local services tax is actually a tax which is actually deducted coming from your pay up to a maximum of $52.00 per year. which is actually collected on a pro-rata basis which is actually determined by the number of payroll periods established by an employer for a calendar year. This specific tax is actually used to help offset the cost of emergency services along with also is actually used to reduce property taxes through homestead acts in certain municipalities.
Our final pay check stub box is actually Year to Date. Ok, we are almost done here! This specific is actually just a total of what has been paid to you along with what has been deducted coming from your pay for the year.
So, currently the all important part of This specific exercise. Why should you care about all of This specific along with how does which affect you?
Well, to start This specific is actually your money. along with yes which is actually important to know where which goes. This specific is actually actually not the day along with age where a woman is actually kept inside dark along with her husband takes care of all of the financial responsibilities while the woman takes care of the house along with children. Most families are made up of two working parents. For most which is actually a necessity to meet the rising cost of food, fuel along with health insurance along with which is actually not an option for many mothers to stay at home. which is actually also unfortunate which the divorce rate in our country continues to rise however which also means which women, like which or not, are almost forced to be financially savvy. So let’s get began on the importance of understand how your money comes along with goes through a paycheck along with why you should care.
You earn an amount coming from your employer. You submit a time sheet or some type of data to your employer letting them know what work you have accomplished or the hours which you have worked. They take which data along with process which through payroll. You then receive a net amount along with which is actually direct deposited in your bank or you take a check to the bank along with deposit which each pay day. We have established which there are taxes along with deductions taken coming from your pay along with you get what is actually left over. currently here is actually why which matters.
Unlike the favorite thought which taxes along with deductions are taken coming from your pay along with there is actually not much you can do about which, there are portions of your pay which you can directly control to put more money in your pocket currently!
We are going to reference back to those pay check boxes again along with go through the portions of those taxes along with deductions which you have control over. I know what you are thinking! Not the boxes again, however bear with me. There will be strategies to help you put money into your family’s hands. which will be up to you to decide what strategies to use along with what your comfort level will be with their affect.
So let’s get began.
Ok, the first thing you should take a serious look at is actually your Federal Withholding. Let me ask you a question; are you one of those folks which get a huge refund when you send in your Federal tax return? If you are, you might want to think about what you are doing. By allowing the federal government the use of your money throughout the year you are missing opportunities. Do you have credit card debt? is actually the credit card company charging you interest on your outstanding balance? Then why “loan” the IRS your earnings when you have debt to pay? Yes you get a big refund at tax time, however what if you had use of which money throughout the year? What would certainly you do with which? Could you pay down debt? Invest which? If you invest This specific money, even in a money market account you could be earning money with these funds instead of allowing the federal government to use which along with then pay which back to you later.
You have to be careful with This specific one. Think about your comfort level. Are you comfortable using which money throughout the year or do you have a need to get This specific all in one lump sum? If you are not a disciplined saver then which lump sum return of your money might be attractive to you. You also have to make sure which if you decide to take which money currently which you check with your accountant or with an online paycheck calculator at the very least to make sure you don’t reduce your Federal Withholding too much along with end up owing money at the end of the year. which will certainly not help you achieve your personal financial goals, not to mention the IRS frowns upon you owing them money. Ironic, isn’t which?
There is actually another item on your paycheck which is actually important along with can keep money in your pocket – which is actually your social security number. When we went through the individual boxes on our check stub I stated which you should NEVER see your entire social security number on your check stub. Instead, the number should be masked by stars or exes. Why? Because identity theft is actually a real threat in our society. So if your paycheck is actually lost inside mail, which is actually bad enough, however if your social security number is actually on which you are just asking for trouble. Check your latest check stub. If you see your social security number on your check contact your payroll administrator right away along with they can have which number masked. which should be standard practice with payroll providers, however some are not paying attention to those trends which can affect the end user, namely, you.
Another item which can save you considerable money is actually which MED125 deduction. A lot of companies have their employees pay a portion of the cost of health insurance. With the increasing cost of health premiums which has become a necessity for most companies. however how can you paying toward your health insurance save you money? Remember This specific health insurance deduction is actually taken coming from your pay along with is actually not taxed.
You cannot assume which if you have a health insurance deduction which which falls under a Section 125 plan. You have to ask your employer if they have This specific plan. If they don’t you could ask them to research one. inside past which was a headache for companies to maintain a 125 plan. however currently a plan which only contains health insurance premiums or a premium only plan has little administrative headache to which if your part of a company with under 99 employees.
Also, another way to save money through payroll is actually to ask your HR or payroll contact if your company incorporates a Full Flex Plan as part of their 125 plan. What does This specific mean? A Full Flex Plan or A Flexible Spending Account as a part of a 125 plan gives you a great opportunity to save money. which allows you to have a predetermined amount withheld coming from your pay each year to pay for various medical needs. If you are having elective surgery, which could be run through the Flex account at your work, so you don’t pay tax on which amount. Many Flex accounts have a list of items which you could put This specific money toward, such as, contact solution, certain over the counter medications, along with even nicotine patches are reimbursable. The thing to watch with Flexible Spending Accounts is actually which they are what is actually called “use them or lose them”. So if you have $2000.00 deducted coming from your pay each year, however only submit reimbursements for $200.00 then you lose the $1800.00 you contributed. Check with your HR or payroll administrator to find out the rules to your company’s Flexible Spending Account.
Another expense which you could be running through payroll using your company’s Section 125 plan is actually Dependent Care. So if you have children which go to a day care facility during the week the amount which you pay to the day care could be run through your pay check along with be deducted coming from you untaxed.
So to summarize This specific Section 125 plan, when these items are run through your paycheck on a pre-tax basis (meaning the amounts deducted coming from you are not taxable) you in effect save approximately an automatic 12-15% on health insurance, medical necessities, along with child care. actually think about which statement. If you child’s day care asked you if you wanted to save 15% on their fees, would certainly you look into? If a pharmacy offered you savings of 15% off of all purchases would certainly you go to there? This specific is actually like an automatic paycheck coupon to save your family money.
My final suggestion is actually what is actually missing coming from our check stub. There is actually no 401(k) or Simple IRA deduction on our stub. These are savings for retirement accounts which are taken coming from your pay along with are not subject to Federal Withholding. If your company offers one of these options look into which. 401(k) plans are run according to the way your company sets them up, so the rules are not standardized. However, many companies offer what is actually called an employer match for deductions which you make into This specific type of retirement account. If your company does offer a match then This specific is actually instant earnings on your contributions. Simple IRA plans require an employer match so you are guaranteed to have an immediate return on your investment.
Consider carefully before you decide which you are not going to participate in one of these plans. If you put aside even a tiny amount I would certainly venture to say which you are not going to miss which money on a per pay basis along with which will go to securing you financial freedom when you retire.
So currently your paycheck should not just be a piece of paper to you. The mystery of what is actually taken out along with why has been explained. I would certainly challenge you to think about some of these strategies for putting money back into your pocket to see how you can save your family money through payroll. Of course, everyone’s financial situation is actually different, so review these strategies with your financial professional before implementing them.
I would certainly also challenge you to look at your pay stub each pay period. The more you look at which the more familiar you become with which along with you will start to know what to expect. When you know what to expect then you will get a feel for what you are paid, when you are paid along with how you are paid. Knowledge is actually one of the first steps toward becoming more financially savvy.