How to Read a Paycheck Stub and Understand It
Empower yourself by understanding your paycheck. Gain clear insight into your earnings, withholdings, and net pay for financial clarity.
A paycheck stub details an employee’s earnings, deductions, and net pay for a specific period. Understanding it helps with personal financial planning, verifying compensation, and tax preparation. Each component shows how gross wages become take-home pay.
Identifying Basic Information
The basic identifying information on a paycheck stub is usually at the top. This section includes the employee’s name, address, and an employee identification number (company ID or partial Social Security Number). The employer’s name and address are also displayed.
This section also details the pay period dates, including the “Pay Period Start Date” and “Pay Period End Date.” The “Pay Date” indicates when payment was issued or deposited. For hourly employees, total hours worked are listed, which helps calculate gross wages.
Understanding Earnings
The earnings section details all compensation received before deductions, forming the gross pay. Regular wages or salary represent standard pay for contracted hours or a fixed amount for the period. Overtime pay is listed separately, reflecting compensation for hours worked beyond the standard workweek, often at a higher rate like time and a half.
Additional earnings, such as bonuses or commissions, appear as distinct line items. Other earnings might include tips, shift differentials, or paid time off (PTO). The sum of these categories constitutes the total gross pay.
Decoding Deductions
Deductions are amounts subtracted from gross pay, categorized by their tax treatment. Pre-tax deductions reduce taxable income, meaning taxes are calculated on a lower amount. Common examples include health insurance premiums and contributions to retirement plans like a 401(k) or 403(b). Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) also represent pre-tax contributions for eligible healthcare or dependent care expenses.
Tax withholdings are mandatory deductions. Federal income tax is withheld based on an employee’s Form W-4, which directs the employer on how much tax to deduct. State and, in some localities, local income tax are also withheld, with rates varying by jurisdiction.
Federal Insurance Contributions Act (FICA) taxes fund Social Security and Medicare. For 2025, the Social Security tax rate is 6.2% for employees, applied to earnings up to an annual wage base limit of $176,100. The Medicare tax rate is 1.45% for employees, with no wage base limit. An Additional Medicare Tax of 0.9% may apply to wages exceeding $200,000, without an employer match.
Post-tax deductions are withheld from pay after taxes. Contributions to a Roth 401(k) are a common example, funded with after-tax dollars for tax-free withdrawals in retirement. Garnishments, legally mandated withholdings for debts like child support or student loans, are also post-tax deductions. Other examples include union dues or repayments for employer-provided loans.
Calculating Net Pay and Reviewing Year-to-Date Totals
Net pay, or take-home pay, is the final amount an employee receives after all deductions. This is the actual amount deposited into bank accounts or issued as a physical check. Details about direct deposit, including the bank name and last few digits of the account number, are provided in this section.
Paycheck stubs also feature year-to-date (YTD) totals for all earnings and deductions. These cumulative figures track amounts from the beginning of the calendar year to the current pay period. Reviewing YTD totals helps with budgeting, monitoring progress toward annual contribution limits, and ensuring accuracy for tax planning.