The main thing you need to check on your paycheck in America is the number of withholding taxes to avoid a big tax bill in April. The Internal Revenue Service (IRS) changes the rules regularly, so if you haven’t filled out your W-4 form correctly with your employer, you could be paying more or less tax than you should.
Many Albanian immigrants to the US simply look at the final amount that comes out of their account (net pay) and don’t read the rest of the document. This is a mistake that can cost you money or leave you without important benefits. Here are 8 things you should check every month:
Gross Pay vs. Net Pay
This is the basic thing, but you need to understand exactly where your money is going.
- Gross Pay: It is the full amount of money you earned before taxes or other payments are taken out.
- Net Pay: This is the net money that comes into your bank account. Make sure the number of hours worked and the hourly rate are calculated correctly.
Overtime
If you work over 40 hours a week, federal law in the US requires that most employees be paid a rate of 1.5 times their normal wage for those additional hours (time and a half).
- What to do: Check if your overtime hours are recorded on a separate line called “Overtime” and at the appropriate incremental rate.
Federal & State Income Tax
This money is withheld by the government for state management.
- What to do: If you find that you’re not getting any federal income tax withheld, talk to your human resources (HR) immediately. This means you’ll owe the government thousands of dollars in one lump sum next year. Use the IRS Tax Withholding Estimator to see if you’re eligible.
FICA (Social Security dhe Medicare)
These are mandatory taxes for all employees with a W-2.
- Social Security: 6.2% of your salary is withheld for your future retirement.
- Medicare (State Health Insurance): 1.45% is withheld for health care when you get older. Your employer pays the same amount for you. Make sure these lines exist on your payslip.
Pension Contributions (401k)
If your company offers a private retirement plan called a 401(k), the money you choose to save is withheld directly from your paycheck before taxes are calculated.
- Golden rule: Check if the correct percentage you requested is being withheld. If your company offers an “employer match” (e.g. if you save 5%, the company gives you another 5%), make sure this free contribution is being recorded correctly.
6. Health Insurance Premiums
If you get health, dental, or vision insurance through your job, your portion of the monthly payment (premium) is withheld from your paycheck.
- Warning: This money must be withheld “pre-tax” (before income tax is calculated), which reduces the amount of taxes you pay. Check that this deduction is being made regularly.
7. Paid Time Off (PTO / Vacation / Sick Time)
Many companies display your vacation hours status directly at the bottom of your payslip.
- What to do: Check that your Paid Time Off hours are being accrued correctly each month according to your contract and that you have not been deducted hours without receiving them.
Year-to-Date (YTD) Amount
On your paycheck, you’ll see a column called “YTD.” This shows the total amount of money you’ve earned and taxes you’ve paid since January 1 of the current year to date.
- Why it’s worth it: This helps you understand which tax bracket you’ll be in at the end of the year and helps you make better financial plans.
To see if you are managing your taxes and benefits correctly, tell me:
- Which US state do you currently work in?
- Does your employer offer a 401(k) retirement plan with a match ?
I can explain to you how to change your W-4 form to keep more cash in your pocket each month.