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[Video] Study Your Pay Stub

STEPHEN SMALENBERGER, EA®
[Length: 4:02 Minute Video]

So we’ve all had the joy of opening a pay stub, expecting a big amount, and then looking at the bottom and being very disappointed. The goal in this video is to walk you though your pay stub, whether this is the first time reviewing a pay stub or you have done it years upon years.

What do you look for? What do you review? What can you change? And what can you automate?

So here is the first thing, no matter if you are paid salary, hourly, you get a bonus, you get a commission, we all start with gross wages.

Gross Wages

Gross wages is really what we make. 

Then we reduce it. There are a couple different deductions here: pre-tax, after-tax, and then taxes. These are our deductions. Things that are taken away from what we make. 

Take Home

And we eventually get down to what we keep. This is also known and our take home.

So from our gross wages we have pre-tax deductions. So think of here your 401k, you can allow and really determine, that deferral or that deductions. This could be 401k, this can be your health insurance and a cafeteria plan through work through your employer. 

So gross wages minus the pre-tax deductions gets you down to taxable wages. 

So think here of your pay stub, which eventually becomes your W2, which then gets reported on your tax return. Not everything you make is taxed because it is reduced by pre-taxes. After you get to taxable wages you can defer some of your salary on after-tax deductions like Roth 401k, or some other common ones here are disability insurance, life insurance, and some large employers allow you to give charitably. 

So I defer some of my paycheck to this charity. That would be after-tax. 

And then there are my taxes. So think here, you have federal withholdings and state withholdings, and the mandatory social security and medicare (also known as FICA).  

And this gets us down to net wages which is what you take home. 

So when we step back and look at this we should be reviewing this periodically. We should be seeing – is my current versus my year-to-date – is it correct? When we have an understanding of what we are looking at, we can determine that. 

Where Should I Make Changes On My Pay Stub? 

If you take your federal withholdings or your state withholdings and you analyze those, you project that out for the rest of the year. Am I going to be having enough withheld when I eventually prepare my tax returns? When you annualize that, prepare it out, and look at last year’s tax return. 

Am I underwithheld? Overwithheld? Make adjustments now before you actually get your W2.

Some easy ways to do that is to reach out to your payroll department or make a change in the number of allowances on your W4 or to just increase the amount of dollar amount that is withheld. 

Also, look at the benefits. If you have things like Health Savings Accounts or a 401k through work, are you taking advantage of those? 

So this is a great change to review, understand, make adjustments. 

Can You Automate You Pay Stub?

Is there anything here you can automate? Maybe it is your take home. You should have that directly deposited to your bank account to make sure something is always there. Or you could split it so that some goes to your savings. 

The last one here is your 401k. If you haven’t been contributing the easy way is to say I want to put aside 10% or 20% to go into this. And before long you’ll be saving and it will just work with your budget. 

Pay Stub In Review.

Review your pay stub so that you know what you are making and what you are taking. Make adjustments as needed and automate where you can. 

If you need help with any of this, we are happy to help you!


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