What is a Pay Stub? A Simple Guide on Everything You Need to Know
Apr 08, 2020 15:59
Whether you're a business owner or employee, it's important to know what is a pay stub and what each item means for your bottom line.
If you get a pay stub as an employee or issue pay stubs to your workers, you may notice a swath of information listed line-by-line that can be confusing if you don't know what they mean.
Read on to learn more about what a pay stub is and what you need to know.
What is a Pay Stub and Why are They Important?
A pay stub is an important part of a paycheck, and it lists detailed information about your pay. These "stubs" include itemizations like your wages, money earned year-to-date, tax deductions, and more.
The pay stub will also show your net pay, which is the total amount of money you take home after all of the deductions are applied. Most companies issue printed pay stubs using software or a pay stub maker, but you can also receive them electronically.
Both employers and employees can use the information provided on a pay stub. This paperwork shows a record of your wages, and it can also help you determine what your deductions are each pay period. Employers may need to refer to pay stubs if there are any discrepancies in pay, and they're also used to complete W2 forms during tax season.
When you ask "what is a pay stub," perhaps the most important part is the gross wages. Your gross pay can be calculated depending on if you're salaried or hourly, and it's usually broken down into two columns showing gross for the pay period and gross pay that is year-to-date.
The gross pay should show the number of hours you worked as well as your current pay rate. It will also show any additional income you earned as a result of overtime or bonuses. It's important to note that gross wages show what you've earned before your deductions are taken.
Taxes and Other Deductions
A pay stub will include important information about any tax-related deductions including both state and federal income tax. You may also see deductions for things like your health insurance premiums or retirement plan.
Each deduction on a pay stub should be listed separately along with an explanation of what it's for. Just like gross wages, the total should be separated into two columns: the current deduction total and year-to-date accumulated deductions.
If your employer makes any contributions such as insurance premiums or 401(k) matches, this should also be included. Finally, after all deductions are taken, the final amount is what's known as your net or take-home pay.
Understand Your Pay Stub
Once you know what is a pay stub and how it relates to your income, it's much easier to understand the breakdown. From wages to tax deductions and more, your pay stub should have all of this crucial information clearly shown for you to review.
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