Most of us don’t pay attention to our paystub. We just check to make sure money landed in our bank account on our payday. That’s a mistake. You should review your paystub carefully at least twice a year – and more than that if your personal situation has changed. A small investment of time will avoid surprises and help you maximize your employee benefits.
How to Read a Paystub
- Gross base pay. I know, obvious. But it’s the largest number on the paystub.
- Bonus pay or other compensation. This is important not only for the gross amount. It is a trigger that you may have under-withheld tax. For example, most employers withhold 22% for restricted stock vesting. That can often be too low.
- Deferrals to your 401k or 403b. Make sure the per period amount will get you to your annual target. Many of you can and should max out to $27,000, or $20,500 if you are under 50. Those are 2022 limits. Some employer plans offer an after-tax (Roth) option. If that’s what you selected, confirm it’s correctly categorized.
- Employer retirement plan match. Assuming your employer matches some of your 401k or 403b contribution, check that you are receiving the max.
- Withholding tax. Look at federal and state income tax withholding and confirm it’s where you want it to be. Most of us prefer to avoid a large tax bill on April 15. The best way to do that: confirm several times a year that your withholding is appropriate. If you need to adjust it, you can always add per-paycheck dollar amounts. To adjust downward, you need to change the withholding percentage. We work with our clients to avoid these surprises, as do our partner CPA firms.
- Health saving account. If you have an HSA paired with a high deductible health plan, check how much you and your employer are contributing to it. The 2022 max is $3,650 for an individual plan and $7,300 for a family plan. If you are 55, you can add $1,000 more. Your contributions are tax deductible. If your employer contributes, that reduces what you can save into it.
- Flexible savings account. If you contribute to an FSA, look at what is going into it – and then make sure you will spend it in the same calendar year. Unlike a health savings account, FSAs are usually “use it or lose it”. As a reminder, your employer may offer a health care FSA, a dependent care FSA (typically used for day care) or both.
- Dependents and filing status. Check that information is correct. Otherwise, your withholding could be off.
- Other deductions. Review deductions for other benefits and make sure you need them. This ranges from pre-tax deductions like health care insurance to after-tax deductions like optional disability insurance.
If you need to change your elections, it’s usually easy to accomplish on your HR portal. If you think you will have a tax bill, the other solution is making estimated tax payments directly to the US Treasury. Remember: if you have significant investment income, you may need to make estimated tax payments anyway.
Reviewing your paystub takes 10 minutes or less. Do it early in the year to catch any problems. Do it again in the fall to make adjustments before year-end. You will reduce the risk of an unpleasant surprise next April 15.