How Do Paystubs Work? Your Questions, Answered

 You're probably wondering why it's important to save the paystubs your employer gets you. How do paystubs work, anyway? Click here to learn the answer!

 Did you know that different states have different paystub requirements and laws?

For example, 9 states in the US, including Alabama and Florida, have 'no requirement' when it comes to providing employees with pay stubs.

Want to learn more about the importance of paystubs? Keep reading to find out everything you need to know, including the answer to: how do paystubs work?

What Are Paystubs for?

Paystubs are part of a paycheck, they detail all the valuable information about your pay. Your paystub shows you how much you've earned within a pay period and how much you've earned with that employer throughout the year to date.

Your paystub will also include details on how many taxes and deductions were taken from your earnings. Once the taxes and deductions are taken away, your paystub will also show you how much you receive, which is known as your net pay.

Some states in the US require employers to provide employees with paystubs. However, other states don't require employers to provide them. The information on your paystub might also differ depending on which state you live and work in.

What Do Paystubs Do and Why Are They Important?

You might receive a paper or a digital pa stub. Both are important and can help you determine whether or not you're being paid correctly. You can also use the paystubs to ensure you know what is being deducted and why you're being taxed.

If you think that you aren't receiving enough pay or that you're being taxed too much, then you'll need your paystub as evidence.

You might also need to provide copies of your paystubs if you want to secure housing or get a loan. Whether you're renting or buying a house, or wanting to take out a loan, you might need to provide evidence of your income. Paystubs are a great way to show mortgagers, landlords, or loan companies that you're able to make payments due to your income.

Remember to keep your pay stubs in a safe and secure place, so that you can find the records if you need them.

Your employer might also keep records of your pay stubs. This is so they can settle any discrepancies about your pay and so they can fill out your Form W-2 for tax purposes.

How Do Paystubs Work?

The best way to understand 'how do pay stubs work' is by knowing what is included on a pay stub and what each section means.
Most paystubs include:
  • Gross pay or wages (this is the amount you earn before taxes and deductions)
  • Taxes (this is the amount of money you owe to federal, state, and local taxes, as well as Social Security and Medicare)
  • Deductions (these are often contributions you make from your wages to your benefits, such as life insurance, retirement funds, and health insurance)
  • Net pay (this is the amount of money you receive after all taxes and deductions).
Other paystubs might also include your details (name and address), your employer's details (name and address), pay period, pay date, pay rate, and hours worked. 

Some pay stubs might also include optional information about your employer's contributions and taxes. Employer contributions detail how much money your employer has contributed towards your benefits, such as life insurance or retirement funds. Employer taxes detail the amount of tax your employer has to pay.
Neither employer contributions or employer taxes take away from or change your net pay. 

What Is Your Gross Pay?

Your gross pay is how much money you receive before you pay any taxes or deductions. Your gross pay is calculated differently for salaried and hourly workers.
This is the amount of money listed for a (salaried) role, divided by the pay period. For example, if a salaried role listed their pay as $50,000 and you got paid monthly, your gross pay would be $4,166 a month (before taxes and deductions). 

Hourly workers can calculate their gross pay by multiplying their hourly pay rate by the number of hours worked. For example, if your hourly pay rate is $10 and you worked 35 hours a week, then your gross pay for that week is $350. 

Regular wages aren't the only thing that might appear under gross pay. You might also see bonuses, overtime, sick pay, or holiday pay.

What Are Your Taxes?

Unfortunately, your gross pay is not the amount you take home. On your pay stub, you'll see the amount of taxes you need to contribute to. This contribution is taken out of your wages for you by your employer.

Common taxes that are deducted from your wage are the federal income tax, the Federal Insurance Contributions Act (FICA) tax (which is for your Medicare and Social Security), and sometimes state and local income taxes. 

The amount of federal tax you pay depends on your tax bracket, which depends on how much you earn. 

Some states and local areas set their own personal income tax rates, while others don't have any. For example, if you live in New York City, you need to pay local taxes that pay for local government service. 

What Are Your Deductions?

Alongside taxes, your gross pay might also be subjected to other deductions. These deductions are often things such as benefits. For example, part of your gross pay might be contributed towards your retirement funds or life insurance. 

Other deductions could include contributions to charitable causes or loan payments.

What Is Your Net Pay?

On your paystub, you'll also see your net pay. This is the amount of money you take home after all taxes and deductions have been subtracted from your gross pay. 

Your net pay will be the amount of money you receive from the company you work for.

If you're an employee, have a look at these paycheck stub template to learn more about how paystubs work. Alternatively, if you're an employer, why not download the modern paystub templates and provide your employees with the stubs they want? 

Keep Your Paystubs Safe

Use our 'how do paystubs work' guide to learn more about your wages and your earnings. Don't forget to keep all your paystubs in a safe and secure place, so that if you need them you can easily find them. 

If you found this article insightful, be sure to read some of our other articles.
 
 
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