How Many Pay Stubs Should You Keep and For How Long?

Pay stubs provide a detailed record of an individual’s compensation and deductions. They offer transparency into earnings and highlight various contributions made from gross pay. Understanding the information contained within these documents helps individuals manage their finances and track income.

Understanding Your Pay Stub’s Value

A pay stub presents a breakdown of an employee’s earnings and withholdings for a specific pay period. It displays gross pay, which is the total amount earned before any deductions, encompassing salary, wages, bonuses, or commissions. This figure is distinct from net pay, often called “take-home pay,” which is the actual amount received after all deductions.

The deductions section details withholdings, such as federal, state, and local income taxes, and Federal Insurance Contributions Act (FICA) taxes, which include Social Security and Medicare contributions. Pre-tax deductions like 401(k) contributions or health insurance premiums are listed, reducing taxable income. Post-tax deductions, such as wage garnishments or union dues, also appear. Pay stubs show year-to-date (YTD) totals for both earnings and deductions, offering a cumulative view of financial activity. This record helps individuals verify pay accuracy and manage finances.

Retention for Tax Purposes

Retaining pay stubs is a sound practice, particularly for tax filing and potential auditing by the Internal Revenue Service (IRS). Pay stubs serve as documentation of income and deductions, complementing W-2 forms and other tax records. This documentation is valuable for reconciling income reported on a W-2, verifying claimed deductions, or responding to an IRS inquiry.

The IRS generally has a three-year statute of limitations for auditing tax returns. This period typically begins on the later of the date the original return was filed or its due date. For example, if a tax return was filed before April 15, the three-year audit period begins on April 15 of that year. Keep pay stubs for at least this three-year period to support tax return information.

In specific circumstances, the IRS can extend the audit period to six years. This applies if there is a substantial understatement of income, defined as an omission of gross income exceeding 25% of the income reported on the return, or if the underreported tax liability is more than $5,000 or 10% of the tax required. Keeping pay stubs for at least six years provides additional protection against audits involving significant income discrepancies.

Retention for Other Financial Needs

Beyond tax-related requirements, pay stubs are requested for other financial transactions as proof of income and employment. These situations require only recent pay stubs, not extensive historical records. For example, when applying for a mortgage, lenders commonly request two to three of the most recent pay stubs, often covering the last 30 days of employment. This helps verify consistent income and ongoing employment.

For car loans, lenders ask for two to three months’ worth of recent pay stubs. Some may request up to six months of stubs for higher-value loans to gain a comprehensive view of financial stability. Renting an apartment also requires recent pay stubs, with landlords requesting two to three months’ worth to assess income and ability to pay rent. The number of stubs can vary based on pay frequency, such as four to eight for weekly pay or two to three for bi-weekly or monthly pay.

Government benefits, such as unemployment assistance, require income verification, and recent pay stubs are accepted for this purpose. These scenarios highlight the short-term utility of current pay stubs for confirming income and financial capacity.

Handling and Disposing of Pay Stubs

Managing pay stubs involves secure storage and proper disposal to protect personal information. Whether physical or digital, these documents contain sensitive data that could be exploited in identity theft. For paper pay stubs, secure storage in a locked cabinet or fire-resistant safe is recommended to prevent unauthorized access and physical damage.

For digital pay stubs, secure practices include using strong, unique passwords for access, enabling multi-factor authentication, and utilizing encrypted cloud storage solutions. Regularly backing up digital records ensures data recovery in case of system failures or cyberattacks.

When a pay stub is no longer needed, secure disposal is important. Physical pay stubs should be shredded using a cross-cut or micro-cut shredder, which renders the information unreadable. Simply tearing or throwing them in the trash leaves personal data vulnerable. For digital files, secure deletion methods should be employed, as merely moving files to a trash bin may not permanently erase them. Using software that securely overwrites data is a more reliable approach.