In general, public employer payroll offices are staffed by dedicated individuals that work hard to make sure your paychecks are processed accurately and in a timely manner. With that being said, everyone is human and honest mistakes sometimes do happen. Therefore, you should take an active role in monitoring your pay.
Here are some areas to review on each pay stub, but especially after you’ve made a change to your tax withholding status or any of your other deductions:
Federal and State Tax
Look at these deductions and ensure that they are being calculated with the number of exemptions and the marital status that you requested. It’s also not a bad idea to schedule a mid-year review with your tax professional (or conduct an analysis yourself if you feel up to the task) in order to make sure that your tax withholding amounts are on target to meet your tax obligations for the year.
It’s much easier to make a mid-year adjustment to your withholding amounts when there are several checks left for the year than it would be to be hit hard by an unexpected tax burden when you are completing your tax returns.
401(k) / 457 / 403(b) Deductions
If you are participating in any of the above tax-deferred investment vehicles, make sure that the amount you requested is being deducted, especially if you have recently requested a change. If your employer offers an employer match that is dependent on contributing to the account or working with the employer for a certain amount of time, make sure the employer match begins once you have fulfilled that requirement.
Colorado PERA Contributions
For most Colorado PERA members, the PERA member contribution should be exactly 8% of PERA-includable salary (certain employees, such as state troopers and CBI agents, pay a different amount). While certain deductions (more on this below) will reduce the amount of PERA-includable salary that is reported to PERA, you should be able to calculate the amount that your PERA contribution should be by subtracting those items from your gross wages and multiplying the result by 8%.
If something seems off, don’t hesitate to talk to your payroll office about it. Chances are there’s a logical explanation, but if an incorrect amount is being reported to PERA, you may not be receiving the full amount of pension coverage that you are entitled to.
Section 125 Deductions
Under an Internal Revenue Code (IRC) Section 125 program, an employer can establish a “flexible spending account” or “cafeteria plan,” which allows you to direct a portion of your salary to purchase benefits such as health and dental care, life insurance or child care. Contributions to a flex spending account or cafeteria plan will reduce your taxable income and will also reduce the amount of salary that is reported to Colorado PERA. (Contributions to a tax-deferred savings vehicle such as a 401(k), on the other hand, will reduce your taxable income, but do not reduce the amount of salary that is reported to PERA).
Because of this, in addition to checking that the current amount being deducted is correct, you will want to consider from time to time if it would be to your advantage to stop these deductions in order to maximize the amount of salary that is reported to PERA. Also, keep in mind that many employers only allow a change to your section 125 deductions to be made once per year during open enrollment, so you will need to plan your strategy regarding these deductions and your PERA benefit well in advance.
Paid Leave Balances
Last but certainly not least, you should check to ensure that the paid leave offered by your employer is accruing according to the schedule they have established. In addition, make sure that any paid leave you have taken during that pay period is accurately reflected as a deduction from your paid leave balance.
Reviewing the items listed above each pay period could potentially offer one of the easiest and best returns on your investment since catching a mistake could save you a lot of money. It’s also usually much less of a hassle for your payroll office to fix something immediately, rather than after it has been wrong for several pay periods.
In addition to ensuring that each paycheck is accurate, getting in the habit of doing this quick review each time may help you be more aware of, and make appropriate adjustments to, items that impact your long-term financial planning such as the amount that you are contributing to a tax-deferred investment vehicle like a 401(k) plan.
What do you pay attention to when reviewing your paycheck? Have you ever had to fix a costly payroll mistake? Tell us about it by leaving a comment.
This post was written by Chris Hoehle, an employer representative from Colorado PERA.
(Would you like to write a guest post for The Dime? Email us at firstname.lastname@example.org.)