Now that so many people receive their paychecks via direct deposit, most of us never even look at our paystubs to make sure we’re receiving the amount of money we’re due each pay period. What are you missing by not looking carefully over your paystub? Smita Patel and Carolyn Rogers-Payroll Managers with SCI Companies in Tampa and Atlanta, respectively-agree that you could be missing a lot. Often, says Patel, people are far too concerned with their net income to examine how much is taken out of a paycheck, and make sure the amount being withheld from their paycheck is appropriate and accurate. Here are six items that you might want to keep an eye on when calculating paycheck withholdings:
1. Federal Tax Payroll Deductions
Who doesn’t love a refund from the federal government, or at least a low tax bill? Paying attention to the number of exemptions on your W-4 is the key to ensuring that you’re pleasantly surprised each tax season. Regularly check the part of your paystub that delineates how much money is being withheld for federal taxes. Patel says, "If [you] go to IRS.gov and look at circular E, look up the frequency you get paid (weekly, biweekly, semimonthly and monthly) and how much, it will show you how much [in] federal taxes should come out of each payroll check." If you discover that the wrong amount of federal taxes is being withheld, you can always fill out a new W-4 form and the correction should occur within one or two pay periods.
2. State/County/City Taxes Payroll Deductions
Part of understanding payroll deductions is researching how the size of your company and the location of its home office can effect your local tax withholdings. First off, if your employer has offices in several different states, check your paystub to ensure the taxes being deducted from your salary are appropriate to your local state, county, and city rates. In addition, tax rates do change and, says Patel, "If you work for a smaller company, they may not have the resources to update new taxes right away when the [revised laws] come out." Of course, this is most important if, by some wonderful happenstance, your tax rates actually drop.
Finally, if you move to a different city or county, the amount of taxes withheld from your paycheck may be different. So, it’s important to make sure the address on your paystub is current.
3. Health Benefit Payroll Deductions
Whether due to a company merger or your new marriage, health benefit payments can change more often than just once a calendar year. Practically speaking, the most important time to review the health premium deductions on paystubs is the first few pay periods following initial enrollment for your benefits package or a change to your plan. If you’re concerned that the wrong amount is being withheld, don’t hesitate to contact your payroll department. Mounting medical bills or ending up with the wrong healthcare plan are two possibilities you don’t want to face. Also, Rogers says that as you make these calculations to remember that all of your health benefits deductions are tax exempt.
In addition, consumer-driven healthcare plans offer health saving accounts that give you the opportunity to reserve pre-tax income to pay for medical care. This can add up to a great discount, but check that paystub to make sure the right amount is being withheld each pay period. The last thing anybody wants is to wait until someone in their family gets sick before they realize the money to cover their costs was never deducted.
4. Additional Payroll Deductions
Health benefits, and federal and local taxes, are only the tip of the iceberg when it comes to understanding payroll deductions. Are you aware of things besides health insurance that may be deducted from your paycheck? If you’re a teacher, plumber or flight attendant, you likely pay union dues. Do you know how much they are? Do you automatically contribute to a 401K? Understanding payroll deductions involves regularly checking these amounts to ensure that you maximize the amount of money coming your way. Remember, if not you, then who? You’ll need to "make sure the correct deductions are coming out of your paycheck," says Rogers. "If not, contact your employer."
5. Advantages of Payroll Direct Deposit
The advantages of payroll direct deposit are obvious, but are you keeping track of where, when and how much income is electronically zipping your way each pay period? These are the key questions to understanding payroll deductions if you’ve tossed out paper paychecks in favor of electronic payment. And, as many companies don’t print out paper paystubs anymore, you may need to log into a secure website to view your paystub. Do this regularly! Also, make sure your company has your current address, bank account number, and routing number. Doing so will ensure that your earnings go into the right account.
6. How to Survive Wage Garnishment
Garnish your what? Well, be grateful if you’re not familiar with this term. Wage garnishment occurs when the court orders that a certain portion of your wages be withheld to pay a debt that you owe, such as child support or alimony. If your wages have been garnished for any reason, it’s important to make sure that your payroll office is withholding the amount ordered by the court, not more or less. Any mistakes here and you could wind up with more court time or legal issues, neither of which helps your bank account.
What’s the most exciting part of your paycheck? The total at the bottom that is all yours! Patel says, people often only look at their net wages and ignore the other areas of the check where money is being withheld. Remember that payroll managers are human and mistakes happen. It’s up to you to make sure that everything you’ve earned is being paid out correctly.
In the end, understanding payroll deductions can be tedious, time-consuming and even a little disappointing (those darn taxes!). But, it can also mean saving hundreds and even thousands of your hard-earned dollars in the long run.