Congratulations! Maybe you just got your first job out of school and you just got paid. Way to go! Maybe you have some questions about the process of getting paid or how to decode your paycheck. Don’t worry, we have the answers you’re looking for.
How do I get paid?
Payments are made through your employer typically by check or Direct Deposit. Direct Deposit is the process in which your payment is added right to your checking or savings account, whichever you tell your employer. While it may not be always required to receive your paycheck via direct deposit, there are some advantageous to receiving money this way. You are not in possession of a physical check, therefore it can’t get lost or stolen and the funds are available sooner. To set up direct deposit payment, your employer will ask you to provide the bank routing number and account number that you wish to have your paycheck deposited to.
When do I get paid?
Companies and employers differ in how they pay their employees. Typical time horizons include weekly, bi-weekly, monthly, or bi-monthly. It is illegal for employers to pay employees in an untimely fashion so it’s a good habit to check each pay period to make sure you were indeed paid.
I got a pay stub with my check, what does it all mean?
Good question. There are usually a lot of categories and amounts on a pay stub which are there to help you break down how your paycheck was determined. If you are unfamiliar with the required state and federal deductions that take place, you might have a hard time understanding some of the break downs. Below is a list of commonly used categories found on paystubs.
This is the real amount of money you have earned during the specific pay period, before any deductions. (Ex: you earn $20/hour and you worked 40 hours this pay period. Your gross pay is $800.)
This is the amount of money that is available to you to spend, after all required or voluntary deductions have been accounted for. (Ex: your gross pay is $800 for the pay period but you have $100 in deductions. The amount of money given to you is $700, your net pay).
Federal Income Tax:
This is the amount of money that is withheld based on the form W-4 that you filled out when you were hired. This amount will depend on how many deductions you listed on the form.
State Income Tax:
This is the amount that the state that you work in is required to deduct from your paycheck. This amount will vary by state but will not vary by individual, like the Federal Income Tax does.
Social Security Tax:
Each employee who works is required to contribute to the Federal Social Security Tax.
The Federal Government also requires that each individual who works also have money withheld from their paycheck to contribute to Medicare.
Year to Date (YTD):
The amount of money that has been earned (or deducted) since the beginning of the calendar year. For example, your paycheck may show that your “Earnings YTD” are equal to $20,000. This means that from January 1 to the last day of the pay period, you have earned $20,000.
Reading your paycheck can be a little daunting at first but once you are familiar with the items listed, you can more confidently understand the breakdown of your earnings. Be sure to keep checking your pay stub to make sure that all items are correct.
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Financial Sisterhood TM, 2016