Don’t Forget to Check Your Paycheck

5 - Don't Forget to Check your Paycheck - Header ImageHave you looked at your paystub recently? If you’re like many people, you might just let the money go to direct deposit and never open up the envelopes that document your payments.

But that would be a mistake. Even if you don’t do it every time, it’s important to regularly check the information on your paystub.

Here’s what you need to know.

What’s on there?

Your paystub contains a wealth of information about your income, tax status, and participation in various tax-deductible programs. At a basic level, you’ll be able to find the following line items:

Item Definitions
Your gross salary The official salary that you earn.
“Above the line” deductions These expenses are deducted from your salary on a pre-tax basis, meaning that they aren’t counted towards your taxable income. They might include:

·       Contributions to your company’s 401(k) plan

·       Health insurance premiums

·       Contributions to a Health Savings Account or Flexible Spending Account

·       A metro card or other reimbursable employee expenses

Social Security and Medicare taxes Every working American contributes to both of these government programs through paycheck deductions.
Income taxes Your paycheck will always account for federal income tax, and depending where you live you’ll also be on the hook for state or local income taxes.
Your net salary This is the amount that you actually take home each pay period. Whew!

So why is this information so important?

Your net income is, of course, the starting point for any budgeting exercise, making it a critical number to know. But that number is directly affected by the other line items on your pay stub, and mistakes can be unnecessarily costly – or even trigger penalties.

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The most common issues and pitfalls

These three basic questions will help you get a handle on your paycheck – and make the very most of your salary.

  1. Does your federal withholding accurately reflect your tax filing status?

These tax payments are estimated, which is why so many people get a tax refund later on.

But that refund is money that shouldn’t have been paid to the government in the first place. Whatever you status, make sure it’s accurately reflected, and if you paid far too much last year you could consider speaking to Human Resources to adjust your deductions – and contribute that money to a savings account instead.

Also, make sure to account for life changes: If you’ve become a head of household, are newly married and planning to file jointly, or newly divorced and now filing as a single person, your withholding should reflect that.

  1. How much are you contributing to pre-tax accounts – and is there a chance you’ll contribute more than the maximum?

Make sure that your contributions and payments are correct – whether as a percentage of your salary or on a dollar basis. Human error is always possible in accounting, so it pays to check that the instructions you created are being implemented in practice.

This is especially pertinent if you’ve made a recent change, for example to your health insurance plan or 401(k) contribution.

But there’s more: your paystub should tell you how much you’ve contributed to each account for the year. If you have a chance of going above the maximum, it is critical that you know about it.

In these situations, you can either reduce your contributions to fall under the limit, or you can make a note to alert your Human Resources department to stop contributions before you reach the maximum.

  1. Does your W-2 accurately reflect your last paystub for the year?

If you’ve double-checked your paystubs periodically throughout the year, you might be confident that things are running smoothly. But there’s one more area where mistakes are easy to overlook: your W-2 tax forms.

Every year, your employer will provide you with a W-2 that documents your income, deductions, and tax withholding. But just because it’s official, it doesn’t mean it’s accurate!

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As soon as you receive it, check your W-2 against the last paystub that you received for the year. The year-to-date numbers should match up – and if they don’t, this will give you plenty of time to get to Human Resources and correct the error.

Remember, it’s your responsibility

In all of these cases, catching errors and taking the correct deductions is your sole responsibility. From the government’s point of view, an over-contribution to your 401(k) or an error on your W-2 is your problem – making it all the more important to prevent it from becoming a problem.

Ready to go beyond paychecks?

If you have children, you probably have an idea of how much they cost. From diapers to dorm rooms, managing your budget when there’s kids in the house is a major balancing act for many families.

But there are ways to make it easier – without sacrificing the childhood opportunities and experiences that are so important to you. Being financially savvy means being strategic, especially about major spending categories.

Ready to get started? Download our free guide to smart money management for parents today!

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Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

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& Associates Insurance Services or United Planners. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners. The listing of a product on this site does not constitute an endorsement or warranty of the product by United Planners.

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