How to Understand a Paystub
- 1). Get out a copy of your pay stub. Make a habit of retaining your pay stubs so you can track your earnings for the year as well as calculate certain taxes. Calculate the percentage of each particular tax regularly against total earnings as this will help you better understand the numbers
- 2). Look at the amount of your gross earnings for each pay period, which is the amount you earn before any taxes are deducted. Multiply your hourly rate by the number of hours you work, which should be equal to your gross weekly earnings. Multiply your gross earnings by 12, for example, if you get paid monthly, which will be equal to your annual salary or YTD (year to date) earnings.
- 3). Understand that most medical, dental, life and long-term disability insurance are pre-taxed, meaning that these expenses are subtracted from your gross earnings before any taxes are calculated.
- 4). Look at the amount of your federal deduction, which should be between 10 percent and 35 percent of your gross income, according to Internal Revenue Service tax rates listed at MoneyBlueBook.com. Divide the amount of the federal tax for the current pay period by your gross earnings to better understand how this number is derived.
- 5). Look at the amount deducted for state taxes, as this figure will also be deducted from your gross earnings. Divide the amount of your state tax for the current pay check by your gross earnings, which will be equal to the state tax rate in your city.
- 6). Divide the FICA (Federal Insurance Contributions Act) amount by your taxable income, which should equal 9 percent in 2010--or 7.65 percent for Social Security and 1.45 percent for Medicare.
- 7). Look at your pay stub and subtract all taxes like federal, state and FICA from your gross earnings. Understand that the figure you derive should be equal to your net pay.
- 8). Compare tax rates for both the current pay period and for your YTD (year to date) figures, as the rates should be commensurate with one another.