Understand your paycheck, taxes, and withholding

Gross pay is earnings before deductions. Taxable wages can differ from gross pay because certain benefits affect taxable income. Net pay is what reaches you after federal, state, and local taxes; Social Security and Medicare taxes; benefit premiums; retirement contributions; garnishments; and other deductions.

Compare hours, rate, overtime, commissions, and paid leave with your records. Review each deduction and confirm that benefit and retirement elections are correct. Payroll mistakes are easier to resolve when identified quickly.

Federal income tax is pay as you go. Employees generally have tax withheld based partly on Form W-4 information. If too little is paid, there may be a bill or penalty. If too much is paid, the refund represents money you did not have available during the year.

Use the current IRS withholding estimator after major changes such as marriage, divorce, a child, a second job, home purchase, retirement, or significant non-wage income. Tax rules and thresholds change, so verify current-year instructions rather than copying an old form.

Self-employed people generally do not have an employer withholding all applicable tax. Estimated payments may be required. Keep business income and expenses organized, transfer a planned percentage of each payment into a separate tax account, and review the estimate quarterly.

Keep receipts, mileage or vehicle records when applicable, invoices, payment processor reports, insurance records, and prior returns. Separate business and personal activity. A deduction reduces taxable income when allowed; it does not make an expense free.