Your Paycheck

A paycheck is traditionally a paper document (a cheque) issued by an employer to pay an employee for services done. Recently, the physical paycheck has been increasingly replaced by electronic direct deposit to bank accounts. Employees with direct depositsmay still receive a pay slip, but any attached cheque is marked as non-negotiable and cannot be cashed.

A pay stub, paystub, payslip, pay advice, or sometimes paycheck stub, is a document an employee receives either as a notice that the direct deposit transaction has gone through, or is attached to their paycheck. Usually it details the gross income and all taxes and any other deductions such as retirement planor pension contributions, insurances, garnishments, or charitable contributions taken out of the gross amount to arrive at the final net pay, also including the year to date totals in some circumstances. Pay slips are labor analogs of remittance advice letters (which are used for invoices).
A typical paycheck that you would receive from an employer.
A typical paycheck that you would receive from an employer.

Payroll checks have 4 basic income taxes that are deducted in order to reach the employees "net check." These are:
  1. Federal income tax
  2. Social Security - 12.4%
  3. Medicare - 2.9%
  4. Massachusetts (State) income tax - 5.3%

Federal income tax is calculated by using tables that are published annually.
Federal Unemployment Tax (FUTA) is withheld for the first $7,000 earned, at a rate of .8%

Social security- A United States federal program of social insurance and benefits developed in 1935.The Social Security program's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest external image paycheck.gifgovernment programs in the world, paying out hundreds of billions of dollars per year.

Medicare-Medicare helps out people at a time in their lives when they may have serious health problems but lack the fundingfor treatment.
It's U.S. federal health program that subsidizes people who meet one of the following criteria:

A. An individual over the age of 65 who has been a U.S. citizen or permanent legal resident for five years.

B. An individual who is disabled and has collected Social securityfor a minimum of two years.

C. An individual who is undergoing dialysis for kidney failure or who is in need of a kidney transplant.

D. An individual who has Amyotrophic Lateral Sclerosis (Lou Gehrig's disease)


Why is it important to understand your paycheck?


  • Understanding your paycheck is very important because you want to make sure that you are being payed the correct amount.
  • Don't be alarmed if the amount on your paycheck doesn't match up with the hours you worked because there are deductions that get taken out first.
  • At the end of the year you can fill out a W4 form to try and get some of the money that was previous deducted out of your paycheck back.
  • Also there are other voluntary deductions that can be taken out of your paycheck which could help you manage your money in the long run.

external image stock-vector-vector-employee-or-boss-presenting-a-paycheck-illustration-5251492.jpg

Definitions:

1. Regular Pay

The amount that you were paid for the last pay period. This is the amount that you are paid before any pretax deductions. If you are on salary, this should be the amount that you were quoted. If you are paid hourly it should be equal to the number of hours you worked times your hourly wage.Example: $10 an hour dor 3 hours. 10 x 3 = $30 regular pay

2. Other Types of Pay

Near your regular pay box, you may see boxes labeled with overtime, holiday and sick pay. This can show the hours you have accrued, or that may come on a separate statement. This will list any of the hours that you used during this pay period. The overtime wage should be calculated at time and a half.

3. Federal Taxable Wages and Withholding

This is the amount of your paycheck that you are taxed on by the federal government. Your pretax deductions (medical and dental insurance, retirement and flexible spending accounts) should be subtracted from your regular pay to equal this amount. The withholding amount is the amount of taxes that you are having withheld.

4. State Taxable Wages and Withholding

The state taxable wages column shows the amount that your state will tax you on. The withholding column shows the amount that the state withheld.

5. FICA or OASDI Taxable Wages and Withholding

Some companies will refer to this tax as FICA (Federal Insurance Contributions Act) or as OASDI (Old Age, Survivors and Disability Insurance program). These are the same program. The money that is taken out is matched by your employer and paid into the social security system.

6. Miscellaneous Withholdings

You will see several smaller boxes that will be labeled with the various other deductions, which should include health insurance, retirement, and any cafeteria plan benefits that you may have signed up for. If you are paying for things such as your bus pass with your paycheck, it will be listed as well, though that items is not tax deductible.
7. Pay Period
The frequency of when you’re paid. You can be paid weekly, bi weekly, monthly, or once a year.

8. Payroll
The total record of earnings of all employees in a year.

9. Gross pay
The total amount you make before any deductions are taken out of your paycheck.

10. Net Pay
The amount that you are paid after all deductions are taken out.

11. 401k Plan Withholding
The percent of your gross pay that is taken out of your paycheck and put into your retirement savings. Although this makes your take home income decrease it adds up once you are retired.


Sources: