When you get your first paycheck or even for those of you receiveing a paycheck, understanding what all the information is can be helpful. You also get a pay stub/earnings statement. This will tell you how much money you earned, the time, or pay period you are getting paid for and what taxes and other money have been taken out, or deducted, from your pay.
Here are some great FAQ’s:
What is gross pay?
Gross pay is all the money you earned at your job. But you do not keep all of your gross pay. Your employer will take money out of your gross pay for taxes and benefits.
What is take-home pay?
Take-home pay, also called net pay, is the money you get in your paycheck. Your employer takes money from your gross pay for taxes and benefits. The money left in your paycheck is your take-home pay.
What is FICA?
FICA stands for Federal Insurance Contributions Act. FICA is money the federal government takes out of your paycheck. This money is used for the government’s Social Security and Medicare programs.
What are tax withholdings?
The law says your employer must take money out of your paycheck for taxes. You can choose how much money to withhold from — or take out of — your paycheck. When you have a big change in your life, you might owe more or less money in taxes than before. To have the right amount of money come out of your paycheck for taxes, you change your withholdings.
What is a W-2?
A W-2 is a form your employer sends you at the end of every year. A W-2 says how much money you earned during the year. Your W-2 also says how much money was taken out of your paycheck for taxes during the year. You use your W-2 when you file your taxes with the Internal Revenue Service (IRS) and some states.
When do I need to change my tax withholdings?
Check your withholdings when you have a big change in your life. You might owe more or less money in taxes than before. You would want to withhold more money if you owe more in taxes. You would want to withhold less money if you owe less in taxes.
Changes that affect your taxes could be if you:
- get married or divorced
- have a baby
- change your job
If you have a big change it may be beneficial to Contact our office to set up a tax planning appointment so you do not have any surprises at year end!
What do I do with my pay stubs?
Keep your pay stubs for a year. Your employer will send you a W-2 form each year. A W-2 form says how much money you earned during the year. Your W-2 also says how much money your employer took out for taxes. When you see that your W-2 is right, you can get rid of your pay stubs for that year.
Shred your pay stubs before you throw them away. Your pay stubs might have your Social Security number on them. Someone could use that to steal your identity.
For more resources on managing money visit consumer.gov.
As always, please feel free to contact us should you have any questions or concerns regarding your tax situation. Stay Up To Date on taxes that affect you!! Subscribe to our Client Newsletter today to receive informative tips and updates on tax and financial changes. Follow CD Tax on Facebook!