Pay Stubs for Tax Filing Guide

Anyone knows that filing taxes can be a daunting task. To do it when you do not have certain documents can be very stressful. A pay stub is considered to be one of those worthy documents when preparing taxes. But can you use pay stubs for tax filing? 

They are not filed with your tax return. However, they contain very relevant data that will assist in completing the forms. Pay stubs may also act as proof in case of any dispute.

Today, we'll talk about pay stubs for tax filing. You'll learn all you need to know about their role and more.

What Is a Pay Stub?

Pay stubs refer to detailed records of an employee’s pay and deductions. It focuses on the wages given within a certain period. A pay stub is a record that keeps you updated throughout the year. You can see your earnings and the tax deductions made on them. It enables you to be certain that your employer is withholding the correct amount of taxes. You can also track your yearly earnings while at it.

Employers are obliged to issue you with a W-2 form. This contains the annual wages, taxes, and deductions. However, pay stubs reflect the information for each pay cycle.

Essential Tax Information Found on Pay Stubs

Several components relevant to one’s taxes are found in pay stubs.

1. Gross Income

This broadly gives the total earnings made before the deductions made. Such could be in the form of taxes, insurance, or any other form of charge. It is used as the base for computing what you will be taxed.

2. Withholding Tax

This contains information about the sum sent to the IRS. Your employer contributes it on your behalf throughout the year. These deductions are included in the estimated federal taxes for the year.

Both state and local taxes, just like federal taxes, entail holdings and deductions. These are paid directly to the state and other local tax authorities. Nevertheless, the rates vary from one state to another. It may also depend on the field of the particular employee or the specialty in which the person works.

FICA taxes are charges imposed for Social Security and Medicare. FICA is one more item on the pay stub. This rate is at 6.2 percent up to a certain wage limit for Social Security. The Medicare rate is simply 1.45%.

3. Pre-tax Deductions

There are some deductions allowed before tax is taken. These include pension contributions and insurance deductions, among others. These reduce the gross income before taxes. Hence, it decreases the amount of money that is required to be paid in tax. 

This helps you to determine the actual amount of tax to be paid on a regular basis. At least you know what you are likely to be charged, and you have an idea of probable deductions.

4. YTD Figures

Year-to-date is very crucial in the preparation of taxes. It shows the total number of earnings and all the deductions that have been made. This is from January 1 to the present pay period. In particular, it can paint a general picture of your financial performance in relation to taxes during the time of filing.

How Can I Use Pay Stubs for Tax Filing?

Here's how you can use pay stubs for tax filing process:

Tracking Income 

They allow you to track your income for the whole year. The pay stubs can be used to confirm that the information displayed on your W-2 form is accurate. This is useful when using your W-2 form to file your taxes. In other words, check the totals you see on your last pay stub by December 31. It should be almost equal to the totals shown on the W-2 form.

Checking Tax Deductions

In a pay stub, there is a clear indication of the amount that has been deducted. It shows the details for different types of taxes in the year. This information helps you know if you are saving enough to meet your tax liability. This helps you avoid a shock at times of filing for taxes. 

Analyze the pay stubs periodically throughout the year. This lets you make changes that affect your withholding status as needed. You just fill out a new W-4 form for the employer.

Verifying Benefits

Also, pay stubs usually show which employee benefits are part of the gross income. It is important to know what benefits are taxable. This lets you effectively declare all the required income in your tax return. Some of the benefits may be partially taxable or may have certain restrictions. Thus, the pay stub shows how it is being managed.

Noting Multiple Income 

Employees may have more than one source of income. Some other individuals have additional self-employment income. Pay stubs from traditional employment can serve as a guide. It helps determine how much more tax you'll pay for the self-employed income. This is useful for preparing the estimates of quarterly taxes. It's also useful to check eligibility and avoid any underpayment.

Tracking Your Taxable Income on Pay Stub

Not all the income reflected on the pay stub will be taxed in a similar manner. On your pay stub, the section labeled “gross pay” gives you your total earnings. However, the amount of tax you end up getting taxed on is less than this. It's because you have some deductions before tax. 

Deductions you made to retirement plans like 401(k)s are an example. HSAs and contributions toward certain insurance premiums are also taken before taxes. Hence, they lower your taxable income.

By using pay stubs, you can know the amount of taxable income. So, you're in a position to estimate the amount of tax payable. This awareness lets you alter your withholdings if necessary.

Wrap Up

Being able to decipher the contents of your pay stubs for tax filing is important. Now, you know how it plays out in your tax matters. So, you are in a position to make some wise decisions throughout the year. Hence, paying attention to these earnings details may help you control your taxes. You also get to save money at the same time.

Your pay stubs are important for your tax filing process and staying on top of your financial matters. With our pay stub tool, you can create accurate, professional pay stubs. Make tax preparation and record-keeping easier than ever. Try it today to streamline your payroll documentation with confidence.

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