Understanding Your Payroll Check Stub
By: Connie Holt, E.A.
The Henssler Financial Group Position Paper

Have you noticed your paycheck stub seems to be getting as complicated as your telephone bill? While it is important to understand both, someone else will have to write an article on how to understand your telephone bill! Allow me to assist you in getting back to the basics by simplifying your paycheck stub and what it represents to you.

Understanding your payroll check stub should be the first step in cash management. You should be reviewing your check stub each pay date for accuracy. The following provides you with an overview of the types of information that you may see on your check stub with explanations of its importance.

Identification Information

The payroll check stub will have identification information such as your name, address, Social Security number and often an internal employee identification code assigned by your company. This information is used to produce your annual W-2 and will be used to complete your income tax return. Your name should be the same as it appears on your Social Security card. This allows the Social Security Administration to properly match your earnings to you. It is important that your Social Security number be correct. Your Social Security, medicare and unemployment taxes are paid to the government using this number.

Time Periods

Generally your check stub will reflect a period ending date as well as a pay date. The pay period will be consistent with your company's payroll policy such as weekly, semi-monthly, or monthly. It is important to recognize that the tax withholding information you give your employer is for all paychecks. If you normally receive a monthly payroll check, you would not want to use the same tax withholding to produce a quarterly bonus check or a week's vacation pay. You should discuss withholding taxes with your payroll department for any payroll checks you receive that do not follow the normal payroll period, prior to the production of the check.

Types of Pay

Typically, there are two types of payroll: salary and hourly wage. Some employers offer nonqualified stock options that increase your W-2 income when exercised.

Salaried payroll is payment using a specific annual dollar amount and is divided by the number of pay periods per calendar year to calculate the gross salary per pay period. Hourly wage is payment using a specific hourly rate of pay for each hour worked. The overtime hourly rate will be one and a half times the regular hourly rate for any overtime hours worked. The hourly rate is multiplied by the hours worked to calculate the gross wage for the pay period.

The check stub will show the different types of pay such as regular salary or wages, vacation pay, holiday pay, sick pay, bonus, commission, etc. If you are paid an hourly wage, the amount of hours and your hourly pay rate will be shown, with any overtime hours separated from regular hours.

Earnings

The check stub will reflect the earnings and deductions for both the pay period and year to date. The figures in the year to date column will include the current pay period payroll payment. All types of earnings will be totaled to reflect the total gross pay. The gross pay minus your deductions will be your net payroll check amount. Your net payroll check amount is your "bring home pay."

Tax Deductions

The taxes deducted from your paycheck will be listed separately for federal income tax, state income tax, Social Security tax, medicare tax and any applicable local income taxes. Federal and state income tax withheld is based on marital status, the allowances you claim, the payroll payment frequency and the federal and state tax tables.

You indicate your marital status and choose the allowances by completing the federal and state Employee's Withholding Allowance Certificate: Federal Form W-4; State Form: for Georgia, Form G-4. This information is often displayed on the check stub.

Social security and medicare taxes are a set percentage of the gross earnings. Social security tax has an annual cap on taxable earnings that change each year. In 2008, the first $102,000 of earnings are taxed for Social Security at 6.2%. Medicare taxes are 1.45% on all earnings.

Other Deductions

Other deductions are deductions you have authorized your employer to deduct from your paycheck. Some of these types of deductions can be exempt from being taxable for federal and state income tax but not Social Security or medicare taxes. Review your benefits with your human resource department to determine which benefits you choose will be excluded from federal and state taxable wages. Some check stubs show which deductions are excluded from federal and state taxable wages.

Some examples of other deductions are: medical insurance, dental insurance, supplemental accidental death & dismemberment insurance, charitable contributions, dependent life insurance, pension loan repayments, pension contributions, deferred compensation, dependent care and/or health care savings plan(s), any applicable expense reimbursements to your employer, and any applicable court ordered deductions such as child support.

If you have elected to have your employer deduct from your paycheck to pay for benefits, be sure that these deductions are not taken out of additional paychecks, such as bonus checks. For example, if you are regularly paid twice a month with dental insurance being deducted on each regular check, you would not need to have dental insurance deducted from your quarterly bonus check if you receive it as an additional check. The total insurance deductions from your checks for each calendar month should equal the monthly insurance premium that you have elected.

Other Information and Benefits

Often the check stub will include information on benefits such as vacation time remaining, or sick/personal time remaining. These benefits are directed by company policy. Some employers have the capability of including informative or instructional notes to their employees on each check stub. A number of employers offer direct deposit of your paycheck. Your direct deposit check stubs may indicate the bank account number(s) that you have authorized your paycheck to be directly deposited into.

What Should I Look For?

Review your check stub for accuracy and for the following:

Recordkeeping

Do I need to keep every pay stub? Generally, there is no need. Remember each pay stub has your year to date information reflected. I recommend that after you review each pay stub you keep the last four most recent pay stubs. This will give you the information you need when requesting credit.

Always keep your last pay stub of each calendar year to compare to the W-2 you receive. If you are able to carry forward any benefits time, such as vacation time, you will want to compare the first check stub of the new year to the benefits time listed on the last check stub of the previous year.

Benefits

Understanding your payroll check stub will enable you to properly budget and make important tax planning decisions. The bottom line on this is more money in your pocket! For more information regarding this topic or any other tax-related issue, please call The Henssler Financial Group Tax & Accounting Division at 770-428-4025.