San Francisco 49ers player Arik Armstead recently made headlines not just for his performance on the football field, but for his impressive pay stubs. With earnings of nearly $400,000 in one pay period and more than $4 million to date, Armstead’s pay stubs shed light on important financial lessons for W-2 employees.
First and foremost, experts emphasize the importance of knowing where each dollar goes. In an era of direct deposit and electronic records, it’s easy to overlook the details of our pay stubs. However, reviewing pay stubs allows employees to understand the breakdown of their gross and net earnings, as well as other payroll deductions. Armstead’s pay stub displays a detailed list of taxes, including Medicare, Social Security, federal, state, and local tax withholdings. These deductions significantly impact the net take-home pay, highlighting the reality that even high earners face substantial taxation.
Tommy Lucas, a certified financial planner, explains that Armstead quickly hit the top income tax brackets for both federal and California state taxes due to his substantial earnings. The top federal income tax rate for 2023 is 37%, while California imposes a 12.3% tax rate for high-income earners, with an additional 1% surcharge for those earning over $1 million. Although working primarily in California means Armstead owes more in taxes compared to athletes residing in income-tax-free states like Florida or Texas, the lesson here is clear: the more you make, the more you pay.
Moreover, it is crucial for employees to monitor their withholdings. Armstead’s withholdings were his decision based on Form W-4, which allowed him to elect the amount of taxes to be withheld from his paycheck. However, underpaying or withholding less than owed may result in penalties and a significant tax bill in April. John Loyd, a certified financial planner, emphasizes the importance of paying attention to Form W-4 and making adjustments throughout the year. The IRS withholding estimator can help ensure employees are on track with withholdings and allow for adjustments through the HR department if necessary.
Another noteworthy aspect of Armstead’s financial strategy is his maxing out of his workplace retirement plan for 2023. Experts stress the benefits of pre-tax 401(k) contributions in reducing adjusted gross income and saving on taxes. Employees under the age of 50 can defer up to $22,500 in 2023 and $23,000 in 2024, while those aged 50 and older can contribute an additional $7,500. Armstead’s decision to maximize his 401(k) contributions aligns with the advice from financial experts.
In 2022, only 15% of Americans maxed out their 401(k) contributions, according to Vanguard. Armstead’s commitment to maximizing his retirement savings demonstrates the importance of utilizing such opportunities to reduce taxable income and secure financial stability for the future.
Overall, Arik Armstead’s pay stubs serve as a financial lesson for W-2 employees. Understanding the breakdown of earnings, monitoring withholdings, and maximizing retirement contributions can have a significant impact on financial well-being, regardless of income level. By taking a proactive approach to their finances, individuals can make informed decisions and optimize their financial situations.
I have over 10 years of experience in the cryptocurrency industry and I have been on the list of the top authors on LinkedIn for the past 5 years. I have a wealth of knowledge to share with my readers, and my goal is to help them navigate the ever-changing world of cryptocurrencies.
