Reading your pay stub for the first time is a little like reading a foreign language. There are all kinds of things that seem to have been deducted from your money before you ever got a chance to see it. A federal pay stub will look exactly the same as any other pay stub, as federal agencies pay you in the exact same way. Once you understand your pay stub, you may be able to save some money, or at least plan for expenses.
Read your pay stub’s gross salary. This is the actual amount of money you earned for the pay period in question. In other words, if your annual salary is $40,000 and you are paid every two weeks, you will earn approximately $1,538.48 every two weeks. Note that this is the amount you earned, not the amount you actually are paid.
Look at your federal and state withholdings. These are income taxes you pay to the federal and state governments based on how much you earn. The amount you pay is based on a sliding scale. As of April 2010, the minimum for the federal government is 10 percent and the maximum is 35 percent. However, this number is a little confusing, as you are taxed at the minimum rate up to the minimum amount of tax, and then everything above that is taxed at the higher rate, and so on. You can find a chart of tax rates online (see Resources section). State tax rates vary greatly. You can check with your local state department of taxation to find out the current percentages.
Look at your local withholding. The local taxes are charged by the city or county you live in. Not every city or county deducts local taxes, so this number may be listed as $0.
Look at the FICA taxes. FICA, which stands for Federal Insurance Contribution Act, covers taxes for Social Security and Medicare. The total tax is generally separated into the two parts, Social Security and Medicare, however, they may also be lumped together as FICA. In total, as of April 2010, you should expect to be paying 7.65 percent in FICA taxes (your employer will also pay the same amount on your behalf).
Look at Year to Date. Year to date means how much you have earned and paid out over the course of the entire year until the day of your most recent federal pay stub. There will generally be a total for gross pay (how much you earned), net pay (how much you received) and possibly for taxes paid.
Look at the other deductions. These may include your share of health insurance costs, costs for union membership, life insurance and other items.
Look at your total net pay. This is the amount you have received this month.
Did you know that you can increase your net pay without getting a raise? If you get a large tax return each year, you should consider filing a new W2 form that will allow you to claim more exemptions. Your tax return may be smaller, but you will have the money in your hands in the interim.
Always ask a professional tax adviser if you don’t understand something on your tax return. Do not try to make changes on your own without consulting a professional. If you do, you may end up liable for extra taxes when you file your tax return at the end of the year and you may even be required to pay a fine.
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