Pay stubs contain essential information such as net and gross wages, taxes and deductions, benefits, and work hours. They also include essential data such as the names of employees, their employers, and addresses.
With that said, let us look at the answers to the questions on why and how long should you keep pay stubs.
5 Reasons for Saving Pay Stubs
1. Keep Track of Your Earnings and Work Hours
Most of the time, employees overlook and ignore their pay stubs once they have received their salaries. They do not give a second thought about the importance of such documents, especially when they live paycheck to paycheck. This dilemma comes with the confusion of what they need to do with their pay stubs after their employers issue them.
The next time you receive your pay stubs, instead of discarding or throwing them in a box and forgetting about them, practice keeping and documenting paycheck stubs. Save pay stubs and use them to keep track of your earnings and work hours. Check for the accuracy of the information provided every week or every pay date. Making this a habit gives you an idea of where and how much of your pay goes to taxes, deductions, benefits and verifies your income.
Scan your payroll stubs to ensure that your employer does not perform a sleight of hand with your earnings.
Freelancers and self-employed individuals would also benefit from keeping records of their income. They would see if their business or career is growing.
As for employers, running a business entails keeping well-organized financial records of every transaction. Not only does this keep them compliant with the law, but pay stubs also help them monitor their salary expenses.
2. Proof of Income
For anyone planning to get a loan, credit, a new property, or rent an apartment, one of the best ways to provide proof of income is by presenting a legitimate pay stub. Banks, lenders, and other institutions could request income verification and would accept pay stubs as evidence. This gives them the confidence that you can fulfil your financial obligations towards them.
If you are a self-employed individual or a freelancer, consider using online pay stub generators such as Real Check Stubs to create a legitimate and professional-looking proof of income. Income verification also comes in handy during employment negotiations, giving you a quick reference if needed.
Start to save pay stubs as soon as possible and keep them for at least a year so that you could provide an income statement at any time or situation.
3. Filing Taxes
One important aspect of pay stubs is their use when it is that time of the year again to file for your taxes. You would want to save paycheck stubs to keep tabs on your income and taxes.
As a general rule of thumb, keep and record your pay stubs for at least one year. This gives you the chance to use them as references quickly when reconciling your W-2 form and Social Security Contributions. It makes it easier and more accurate, and you do not have to worry about inconsistencies in your filing.
Even if you do not file your tax return yourself, your accountant would appreciate it that you save pay stubs. It also allows for double-checking with your accountant.
Saving pay stubs is also essential for businesses when tax season comes around. This is especially true for small businesses that might not have the financial resources to hire a professional who could complete payrolls full-time. Organized financial statements and records would make everything done easier for companies.
4. Protection during a Tax Audit
Accurate, correct, and legitimate financial records are vital to protect one's business during a tax audit. Whether you are self-employed or employed in a company, state or federal tax agencies could audit your financial records. In case you are subjected to such reviews, every pay stub you keep would support the information provided in your tax filings.
The Equal Employment Opportunity Commission (EEOC) requires many companies to keep employee records such as payroll stubs. This gives companies easily accessible records when facing a complaint from an employee or a regulatory investigation.
5. Identity Verification
Pay stubs also come in handy when you are in a situation to verify your identity. When you are opening a bank account or getting a car loan, each pay stub contains personal details such as your social security number, and address among others. Banks would also request a copy of your most recent pay stub along with a copy of your state-issued identification card, SSN card, and other legal documents to confirm your information.
How Long Should You Keep Pay Stubs?
As stated earlier, saving pay stubs as soon as you receive them is very important. However, you also do not want to store them for too long and create a pile that would clutter your home. So, how long should you keep a pay stub? Generally, save pay stubs for at least a year. This gives you the chance to have quick references when you need them for financial obligations. Keep either a digital copy or a hard one for easier recording of a year's worth of pay stubs.
If you are an employer, you could use online pay stub generators, such as Real Check Stubs, to create your employees' payroll, which you could save via the cloud. Your employees would receive their pay stubs on time, and you would not have to worry about how long to keep them.
As for other important documents such as your annual tax return, the IRS recommends that you keep them for at least seven years.
Digital Pay Stub Copies
For some people, holding on to documents for more than a year would make them feel better than throwing them out. However, if you feel the need to save pay stubs for longer than necessary without worrying about papers piling up, you could always create digital copies of them.
Having financial documents in digital format is a convenient way to store them without taking up to much physical space in your home.
Scan or take pictures of each pay stub you receive and save them on your computer's hard drive. Digital copies also give you easy access to pay stubs whenever you need them. However, this runs the risk of your device performing slower from the accumulation of data. A solution to this is by using cloud-based storage services through the Internet.
Cloud-based storage allows you to store a ton of data without your computer running slower and lets you keep your pay stubs forever. Produce a digital copy of your documents and upload them directly to Google Drive or Dropbox. Just make sure you have access to the Internet to perform this task.
How to Safely Discard Paycheck Stubs
Identity theft is a severe offence that should not be taken lightly. Someone with a bad intention could use your pay stubs to benefit themselves. Paycheck stubs contain personal and sensitive information that could be used to make fake pay stubs, so always dispose of them very carefully.
In the hands of a stranger, your pay stub with your name, address, Social Security Number could cause you problems. If they use it to get loans or credit illegally, you could be flagged when applying for similar benefits.
When you are ready to throw out your pay stubs, discard them properly by shredding them. This also goes with other personal financial information as they also contain your sensitive data. If you do not have a paper shredder, you could go look for businesses that provide shredding. You cut down on clutter and ensure your safety.
As essential financial documents that you should learn how long to keep pay stubs and why you should save them. Information provided by your payroll could give you plenty of benefits, such as getting loans, credits, and mortgages.
You could use pay stubs to keep track of your earnings, use them as proof of income, and verify your identity. Saving a year’s worth of payroll stubs could go a long way when you are filing taxes, reconciling your W2 form and Social Security Contributions, and when you are a subject of a tax audit by the IRS.
However, holding on to documents could pile up and you may want to discard them. Consider converting your pay stubs into digital copies and saving them into the cloud. This saves you space in your home and when you do throw them out, shred them to protect you from possible fraudulent activities.