Medicare Ohio - A Paycheck is a Paycheck is a Paycheck, Right? Wrong!
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Ok so you get a paycheck. It is mailed to you, sent by email or handed to you by your arch-nemesis (your supervisor). Or maybe you are the man handing them out. Either way, the scenario is the same. You have in your hand or inbox a document showing you what you were paid. And to some, quite mysteriously, there is money taken out of your income and given to the government, or whoever, and it reduces the estimate that you have to shop, save, or pay bills with. It could happen to you every week, every other week or each month. And you take that money that is left over and do with it anything you chose. So why should you care where the extra money goes? It's gone, right?
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But here is the thing....where did it go? Did it go in the right amount? How does it affect you? Your spending habits, your budget, and the way you save for the future? It's gone, right? So who cares where it went, it's not arrival to you, right? Wrong!
I'm not going to be one of these citizen to tell you that you can't afford things, or will ring bells and make funny noises to indicate that something to do with your finances should be important to you. But I will tell you this - it's your money and you need to know where it goes and why.
Now, most of us are savvier about money than say our mothers. (Sorry Mom!) Or we think we are. I was recently working with my mom going through her financial paperwork and was surprised about the things I take for granted as base knowledge that she was not aware of. She is a smart woman, so I was a tiny surprised. So we might be ahead of our Mother's generation in terms of being more financially independent, but ask yourself, where does the money that comes out of your paycheck go? Do you know? Do you know what all of those fancy tiny acronyms mean? And why should you care?
First: the paycheck. And yes, we are going to go through it line by line. But I promise it won't be torture. We'll make it quick and then talk about why you should look at this every pay duration and how it affects you.
So, what should you look at when you receive your pay stub? You may not like my answer, but the sass is everything. Let me ask you a question. If you lost 1.63 from your wallet would you care? Would you look for that money? Be honest with yourself, would you panic? Now I am not saying that you have lost this 1.63 from your pay, but if you don't know what it is or where it goes, it is as good as lost.
So now for the fun! Let's go through this pay stub line by line so that you can understand what you are being paid and where those deductions end up.
The first box is Emp#. This is your employee estimate that is assigned through payroll. This one does not have relevance unless your Hr branch asks you to provide this to them as a disposition part of how they identify you before speaking with you about a qoute or inquire with your pay.
The next box is business Name. It is important for you to know what the legal name of the business you work for is if you have an issue or a problem. An example of an issue or a qoute that would be affected by you knowing your company's legal name would be if you needed to apply for Worker's payment or Unemployment. Again, why? Because these agencies refer to the business you work for by their legal name. If you do the same you will avoid blurring when dealing with them.
The next box is duration End date. This box is important to check because it states the duration for which you are being paid. You may ask yourself, who cares? The sass is -you should. Does the estimate being paid agree with the duration that you worked for? In our scenario we have a salaried personel but if you were being paid by the hour, how can you know you have been paid for the hours you worked unless you know what duration your boss is paying those hours for?
The next box is Dept#. Even I will admit that this one is not too important unless your boss deducts things from your pay for working in a specific department. For instance, in restaurants employers may deduct an estimate from your pay for uniform maintenance or you might have a deduction from your pay if a branch in that cafeteria is allowed to eat lunch while working and the boss deducts a flat estimate for food costs.
Our next box is the strangeness box! It says Fw =M 01. Is it an algebraic formula? Is it something Einstein invented? No, this is de facto an important box! The Fw stands for Federal Withholding. The M stands for Married and the 01 is the estimate of dependents that is being claimed on form W4. This box drives what comes out of your pay for Federal Withholding and can decree the all important game of Either or not you receive a reimbursement after filing your yearly tax return or Either you will have to send money into the Irs.
What is important to know about this is that the Federal Withholding taken from your pay each pay duration is based on a tax table. So the way this calculates is any payroll system will look at your gross pay, the frequency you are paid (weekly, every two weeks, etc.), and what you claimed on your W4 to see how much tax to take from your check.
The tax table calculates based first on Either you are claiming the status of singular or Married and then on the estimate of allowances you have claimed, in our case 01. The general rule of thumb is that singular claiming 00 allowances takes the maximum tax and Married with more allowances takes less and less tax. We will get supplementary into this in the why you should care quantum of this article.
Our next box Ss# xxx-xx-0123 again looks something we learned in high school algebra. It's not. It is your group security number. What do you need to know about this? You need to know that this is the way it should look on your check stub. Or it could look like: ***-**-0123. Or it could be all exes or all *s. What you should Never see on your check stub is your full group security estimate printed out.
Our next box is your name and address. This one is only of concern to make sure that it is correct. Sounds simple. Make sure it stays simple. Your business may have distinct policies of how they get facts to you. Most will mail at least your W2 form directly to you at the end of each year. So make sure your facts is current so that there is no disruption to you receiving important tax information. If you move, alert the approved man in your business as soon as potential so that they can get your payroll records updated.
Under your name and address are two boxes: check # and net pay. The check estimate is not something that you need to look at. It is the check estimate assigned by your company. If you misplace a check or need to speak to man regarding your check they can look up the facts they need in their records. The net pay is the estimate of pay that you will take home after taxes and deductions have been taken from your pay.
Our next box is the income box. Stay with me here we are getting to the good stuff! This box tells you how much you are being paid before taxes and other items are deducted from your pay. In this pay stub we have a wage estimate (Sal1). However, if you are paid by the hour, you will want to make sure the hours you told your boss you worked and the hours on your pay stub match. Mistakes can happen in processing payroll, they are not intentional. It is your accountability to check your pay stub and let your boss know if there was an error in reporting your hours to the payroll company.
Other types of income may comprise commissions, bonuses, and even reimbursements for telephone usage, mileage or office supplies purchased.
The next box is labeled taxes. We are going to go through each item in this box to expound the distinct payroll taxes.
- Fwh = Federal Withholding. We gave the example of this above when seeing at the Ss# box. This is your Federal income Tax being withheld from your pay each payroll period.
- Fica = This tax is the Federal guarnatee gift Act tax. It is taken at a flat ration of 6.2% up to an yearly income cap. These taxes are taken to provide a variety of benefits to qualifying workers and their families through the schedule known as group security.
- Medfica = This tax falls under the Federal guarnatee gift Act and allows an supplementary 1.45% of your pay to be withheld for Medicare, which provides condition guarnatee for qualifying disabled workers and citizen 65 years of age and older. There is no income cap with this tax.
- St = State Withholding. Here in Pennsylvania this is a flat ration tax. However, in many states the withholding works much like the Federal Withholding tax. It is based on what you claim on your state W4 form. Again the principle is the same, the tax table calculates based first on Either you are claiming the status of singular or Married and then on the estimate of allowances you have claimed, in our case 01. The general rule of thumb is that singular claiming 00 allowances takes the maximum tax and Married with more allowances takes less and less tax.
- Wchpa = This is the local tax where my business in this example is located. In Pennsylvania there are thousands of local taxes. They range from.5% to the Philadelphia wage tax that exceeds 3%. The tax is based on where you are employed and not where you live. The next state close to Pennsylvania in the estimate of local taxes is Ohio. Many from this area would be surprised to know that many states have no local taxes.
- Pa Unem = This tax is the Pennsylvania employee share of unemployment. This tax can come and go. In times of high unemployment percentages the State deducts this tax from employees to help offset the cost of the cost of unemployment to those who do not have work. Other states have similar taxes and some also have employees lead to disability and state paid condition care.
Next is our deductions box. There are two deductions here as an example of what you could expect to see.
The first deduction is labeled Med125. Med125 refers to medical guarnatee premiums that are deducted from your pay and that are run through a Section 125 plan as defined by the Irs. What does this mean to you? If you have a condition guarnatee prime deducted from your pay there are two ways to do it. One is a approved deduction that comes out of your pay after all of the taxes have been deducted. The other is through a Section 125 plan. If your business has an established 125 plan then your condition guarnatee deduction comes out of your pay before taxes and is not subject to payroll taxes. If you are not sure what your business offers ask man in your Hr department. Using a Section 125 plan saves employees the cost of paying taxes on their condition guarnatee gift deductions.
The next deduction is labeled Lst. This is the Local Services Tax for Pennsylvania. The local services tax is a tax that is deducted from your pay up to a maximum of .00 per year. It is collected on a pro-rata basis that is considered by the estimate of payroll periods established by an boss for a calendar year. This tax is used to help offset the cost of emergency services and also is used to reduce property taxes through homestead acts in inevitable municipalities.
Our final pay check stub box is Year to Date. Ok, we are practically done here! This is just a total of what has been paid to you and what has been deducted from your pay for the year.
So, now the all important part of this exercise. Why should you care about all of this and how does it affect you?
Well, to start this is your money. And yes it is important to know where it goes. This is de facto not the day and age where a woman is kept in the dark and her husband takes care of all of the financial responsibilities while the woman takes care of the house and children. Most families are made up of two working parents. For most it is a necessity to meet the rising cost of food, fuel and condition guarnatee and it is not an choice for many mothers to stay at home. It is also unfortunate that the disunion rate in our country continues to rise but it also means that women, like it or not, are practically forced to be financially savvy. So let's get started on the importance of understand how your money comes and goes through a paycheck and why you should care.
You earn an estimate from your employer. You submit a time sheet or some type of data to your boss letting them know what work you have fulfilled, or the hours that you have worked. They take that data and process it through payroll. You then receive a net estimate and it is direct deposited in your bank or you take a check to the bank and deposit it each pay day. We have established that there are taxes and deductions taken from your pay and you get what is left over. Now here is why it matters.
Unlike the popular belief that taxes and deductions are taken from your pay and there is not much you can do about it, there are portions of your pay that you can directly control to put more money in your pocket now!
We are going to reference back to those pay check boxes again and go through the portions of those taxes and deductions that you have control over. I know what you are thinking! Not the boxes again, but bear with me. There will be strategies to help you put money into your family's hands. It will be up to you to decree what strategies to use and what your relax level will be with their affect.
So let's get started.
Ok, the first thing you should take a serious look at is your Federal Withholding. Let me ask you a question; are you one of those folks that get a huge reimbursement when you send in your Federal tax return? If you are, you might want to think about what you are doing. By allowing the federal government the use of your money throughout the year you are missing opportunities. Do you have credit card debt? Is the credit card business charging you interest on your superior balance? Then why "loan" the Irs your income when you have debt to pay? Yes you get a big reimbursement at tax time, but what if you had use of that money throughout the year? What would you do with it? Could you pay down debt? spend it? If you spend this money, even in a money shop inventory you could be earning money with these funds instead of allowing the federal government to use it and then pay it back to you later.
You have to be right with this one. Think about your relax level. Are you comfortable using that money throughout the year or do you have a need to get this all in one lump sum? If you are not a disciplined saver then that lump sum return of your money might be curious to you. You also have to make sure that if you decree to take that money now that you check with your accountant or with an online paycheck calculator at the very least to make sure you don't reduce your Federal Withholding too much and end up owing money at the end of the year. That will de facto not help you achieve your personal financial goals, not to mention the Irs frowns upon you owing them money. Ironic, isn't it?
There is an additional one item on your paycheck that is important and can keep money in your pocket - it is your group security number. When we went through the personel boxes on our check stub I stated that you should Never see your entire group security estimate on your check stub. Instead, the estimate should be masked by stars or exes. Why? Because identity theft is a real threat in our society. So if your paycheck is lost in the mail, that is bad enough, but if your group security estimate is on it you are just asking for trouble. Check your newest check stub. If you see your group security estimate on your check caress your payroll administrator right away and they can have that estimate masked. It should be approved practice with payroll providers, but some are not paying concentration to those trends that can affect the end user, namely, you.
Another item that can save you requisite money is that Med125 deduction. A lot of companies have their employees pay a quantum of the cost of condition insurance. With the expanding cost of condition premiums it has become a necessity for most companies. But how can you paying toward your condition guarnatee save you money? Remember this condition guarnatee deduction is taken from your pay and is not taxed.
You cannot assume that if you have a condition guarnatee deduction that it falls under a Section 125 plan. You have to ask your boss if they have this plan. If they don't you could ask them to explore one. In the past it was a headache for companies to assert a 125 plan. But now a plan that only contains condition guarnatee premiums or a prime only plan has tiny menagerial headache to it if your part of a business with under 99 employees.
Also, an additional one way to save money through payroll is to ask your Hr or payroll caress if your business has a Full Flex Plan as part of their 125 plan. What does this mean? A Full Flex Plan or A Flexible Spending inventory as a part of a 125 plan gives you a great chance to save money. It allows you to have a predetermined estimate withheld from your pay each year to pay for varied medical needs. If you are having elective surgery, it could be run through the Flex inventory at your work, so you don't pay tax on that amount. Many Flex accounts have a list of items that you could put this money toward, such as, caress solution, inevitable over the counter medications, and even nicotine patches are reimbursable. The thing to watch with Flexible Spending Accounts is that they are what is called "use them or lose them". So if you have 00.00 deducted from your pay each year, but only submit reimbursements for 0.00 then you lose the 00.00 you contributed. Check with your Hr or payroll administrator to find out the rules to your company's Flexible Spending Account.
Another expense that you could be running through payroll using your company's Section 125 plan is Dependent Care. So if you have children that go to a day care premise during the week the estimate that you pay to the day care could be run through your pay check and be deducted from you untaxed.
So to summarize this Section 125 plan, when these items are run through your paycheck on a pre-tax basis (meaning the amounts deducted from you are not taxable) you in succeed save practically an self-acting 12-15% on condition insurance, medical necessities, and child care. de facto think about that statement. If you child's day care asked you if you wanted to save 15% on their fees, would you look into? If a pharmacy offered you savings of 15% off of all purchases would you go to there? This is like an self-acting paycheck coupon to save your family money.
My final recommendation is what is missing from our check stub. There is no 401(k) or simple Ira deduction on our stub. These are savings for retirement accounts that are taken from your pay and are not subject to Federal Withholding. If your business offers one of these options look into it. 401(k) plans are run according to the way your business sets them up, so the rules are not standardized. However, many companies offer what is called an boss match for deductions that you make into this type of retirement account. If your business does offer a match then this is instant income on your contributions. simple Ira plans want an boss match so you are guaranteed to have an immediate return on your investment.
Consider considered before you decree that you are not going to share in one of these plans. If you put aside even a small estimate I would investment to say that you are not going to miss that money on a per pay basis and it will go to securing you financial freedom when you retire.
So now your paycheck should not just be a piece of paper to you. The strangeness of what is taken out and why has been explained. I would challenge you to think about some of these strategies for putting money back into your pocket to see how you can save your family money through payroll. Of course, everyone's financial situation is different, so narrate these strategies with your financial professional before implementing them.
I would also challenge you to look at your pay stub each pay period. The more you look at it the more customary you become with it and you will start to know what to expect. When you know what to expect then you will get a feel for what you are paid, when you are paid and how you are paid. Knowledge is one of the first steps toward becoming more financially savvy.
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