Why it is smaller than you expected
Two deductions are fixed. Social Security takes 6.2 percent and Medicare takes 1.45 percent, which makes 7.65 percent off the top of nearly every paycheck in the country. Federal income tax withholding comes next, and its size follows the Form W-4 you completed on your first day. Most states withhold their own income tax, and a few cities do as well. After that come the deductions you chose: health insurance premiums, retirement contributions and similar benefits, most of which are taken before tax and so reduce the income you are taxed on.
Why it is late
Most employers pay in arrears, which means the check covers a period that ended a week or two earlier. Start in the middle of a pay period and your first check may be partial and may arrive three or four weeks after your first day, so keep enough cash to cover a month. Learn the calendar as well. Biweekly pay produces 26 checks a year and semimonthly pay produces 24. On a biweekly schedule, two months each year contain a third check, which is worth assigning to savings in advance.
Reading the stub
- You check that your name, address and Social Security number are correct, because the year-end tax form is built from them.
- You confirm the pay rate and the hours, including any overtime, against your own record.
- You check that state tax is being withheld for the state where you live and work.
- You confirm that each benefit deduction matches what you enrolled in, and that retirement contributions have started if you elected them.
- You look at the year-to-date column, which is how you will catch an error that repeats.
Report any mistake to payroll in writing within the week.
Setting it up well
Use direct deposit, and ask payroll to split it so that a fixed amount goes straight to a savings account you do not see every day. Fill out the W-4 honestly. Claiming exemption from withholding when you do not qualify produces a larger check now and a bill with penalties in April. A large refund is the opposite error, an interest-free loan to the government, and a revised W-4 fixes it within one or two pay periods.
Tip Save the last pay stub of the year. Its year-to-date totals should agree with the Form W-2 your employer must send by the end of January.
