Remember your first paycheck? Were you disappointed when you saw the amount was less than you thought after deductions? Depending on your state and tax rate, you may only take home about 75 percent of your salary.
It's important to know where all your money goes, so reading your pay stub accurately is important. Keep reading to understand more about your pay stub and help you know more about pay stub deduction codes.
What Are Pay Stub Deduction Codes?
Looking at your pay stub is like looking at an itemized receipt. You will see a series of codes in a column, and these are deductions. You will then see a number and then these numbers are added together at the bottom.
This is the amount of money taken out of your paycheck. These deduction codes show you're paying tax and how much you contribute to all the different systems.
Gross Pay
You will see what your pay is before all your deductions. This is known as your gross pay. To know your gross pay, you take your salary divided by the number of pay periods.
Most people get paid bi-weekly, so if you are on salary, you would take that amount divided by 26, since there are 52 weeks in the year.
If you are an hourly employee, you will see a breakdown of your hours and your rate of pay or hourly rate.
Tax Codes
There are four main tax codes you will see on your pay stub. The rates can vary based on your state and your salary.
State Withholding Tax (SWT) is also required in most states. This money pays for expenses at the state level. You may also have local state taxes depending on where you live.
Federal Withholding Tax (FWT) is required for all U.S. citizens. This money goes to different areas for the governance of the country. Your salary determines your percentage.
Federal Insurance Contributions Act (FICA)-Medicare (FIM) is a deduction that goes toward Medicare. The current rate is 1.45 percent, and your employer also pays 1.45 percent to pay the 2.9 percent total rate.
FICA-Social Security (FIO) tax is deducted from your paycheck at a percentage of 6.2 percent.
Benefit Deductions
If you receive benefits such as health insurance, dental insurance, or life insurance from your employer, your contributions are deducted from each paycheck. These could be shown in various ways, but typically your payroll department will shorten them to something like INS/MED for medical insurance, LIFE for life insurance, DEN for dental insurance.
Your retirement contributions will also appear in this area. This includes any money you add to your savings for your 401K, which may appear as 401k or RET.
FSA or HSA is the amount you contribute to your Flexible Spending Account or Health Savings Account.
Other Codes
If you are a salaried employee, meaning you have a set yearly wage, you will see EXEMPT. Hourly employees paid by the hour are NONEXEMPT.
You may also see some other codes on your pay stub including:
-
ERA - Educational Retirement Act Contributions
-
GROSS- Earnings before deductions
-
YTD- Year-to-date code that shows how much you have contributed
-
ACR - Accounts receivable if you owe money to the company
-
FL - Family leave
-
HOL- Holiday pay for holidays such as Christmas, New Years, Thanksgiving, etc.
-
VAC - Vacation pay
-
VCE - Vacation pay exempt (salaried employee vs. hourly)
These codes can vary from different companies, but you have a general idea of what to look for and how to read. Abbreviations may also be different.
There are typically two columns that show you what is paid during that pay period and also year-to-date.
If you have any court-ordered payments such as alimony or child support, you will see them listed on this as well. This is a mandatory deduction.
Employer Contributions
Some employers include information on your pay stubs that are not deductions. These show the amount an employer contributes such as insurance premiums, taxes, or retirement plans.
You will be able to tell if it is deducted or not and each contribution should be listed on a different line.
Net Pay
You will then see your net pay, which is your gross pay minus all the deductions listed above. If you have an electronic deposit, you will see the amount that was deposited into your account.
If you chose to distribute your pay among multiple accounts such as checking and savings accounts, you will see the breakdown of how much was deposited into each account.
Some of these deductions may not come out of every paycheck. Depending on your employer, some deductions may be monthly like insurance. Taxes do come out of each pay.
Make Your Pay Stub
Do you need to create pay stubs for your employer? There are available templates for a paycheck stub maker to help you fill out the needed information. The templates already have the current rates, so you select state and get the updated rate.
You will need a pay stub for:
-
Mortgage
-
Personal loans
-
Renting
-
Car loans
-
Taxes
-
Accident compensation
You should keep your pay stubs until you get your next one. For taxes, you will want to keep your last pay stub to make sure it matches your tax form.
Understanding Your Pay Stub Deduction Codes
Even though pay stubs may vary, it's important for you to have a general idea of what your pay stub deduction codes mean. This can help you monitor what is being deducted.
You should review from time to time to make sure all the deductions are correct. If you receive a direct deposit, your employer will tell you where to find your pay stubs, so you can view all your deductions.
Knowing your take-home pay after all your deductions can also help you set a reasonable budget. If you are looking at these numbers to buy a house, keep checking out our site for additional information on buying, selling, and investing in real estate.
* This is a contributed article and this content does not necessarily represent the views of realtytoday.com
