Getting your paycheck is the day you look forward to, but make sure you know how to read it. Here’s how to understand your paycheck in 3 simple steps.
When was the last time you actually looked at your paycheck? In today’s digital age of mobile banking, check deposits with just your smartphone camera, and direct deposit, you may not even receive a paper check in the mail to review anymore. Therefore, you also probably don’t know how to read a paycheck.
All of the numbers, categories, and abbreviations can be confusing, but you don’t need to be a financial aficionado to learn how to read your paycheck. Keep reading and we’ll teach you how to understand your check in just a few simple steps.
Understanding Your Paycheck: 101
First, we’ll begin with the basic areas on your pay stubs, such as what information it contains, income, and deduction types. Then we’ll explain how this relates to your taxes and other uses. If you don’t receive a physical paycheck and you need one to prove income, we’ll show you a solution for that too.
Let’s get started.
1. Personal Information
Among the many important pieces of information on your paycheck is your personal information. This typically includes:
- Your first and last name
- Your mailing address
- Social Security Number
- The days you worked/the pay period
- Your employee ID number
- You tax filing status
This information is important as it helps to make sure the money is going to the right person and so you and/or your employer can verify your hours worked to make sure you are being compensated properly. This can and should be cross-checked with your W-4 to make sure your tax filing status (which is represented as a 1 or a 0) is the same on both documents.
2. Income and Deduction Types
Next is everyone’s favorite, and least favorite, area on the check. Income and deductions. Your income will be broken down into categories of “gross” and “net” income.
Gross income is the amount of money earned with the pay period before taxes are taken out. Net income represents your take-home pay or your money after you’ve paid your taxes. There should be a cumulative total for both of these with the abbreviation YTD (year-to-date) showing you what you earned, before and after taxes, that fiscal year.
These numbers are especially important if you need to prove your income.
3. Proving Your Income
You may be asked to provide proof-of-income when applying for a home or car loan, a lease for an apartment, and for tax purposes. If your employer doesn’t issue you a paper paycheck and you need income verification, you can use this editable paycheck stub template.
This can also be a good way for you to create a budget. Once you understand the information on your paycheck, it is much easier to maintain a budget.
It’s Easy to Understand Your Paycheck
With these tips, you can understand how to read a paycheck with no problem. If you don’t receive paychecks and you need one, be sure to check out the paycheck stub template above. A part of being responsible with your finances is keeping these important documents for when you need them.
We hope this article has helped you. Be sure to check out the rest of our website for more life, business, and financial advice.