How to Read My Pay Stub: A Breakdown of Your Earnings

A pay stub serves as a detailed record of your compensation for a specific pay period, outlining your gross earnings, itemized deductions, and net pay. Understanding your pay stub is fundamental for personal financial record-keeping, allowing you to verify your earnings and ensure correct amounts are withheld.

Understanding Your Earnings

Your gross pay represents the total amount of money you earned before any deductions or taxes are taken out. This figure is the starting point on your pay stub, and various components can contribute to it. For employees paid an hourly wage, gross pay is calculated by multiplying the hourly rate by the number of hours worked, including any overtime hours. Overtime is generally paid at a rate of one and a half times your regular hourly rate for hours worked beyond 40 in a workweek, as mandated by the Fair Labor Standards Act (FLSA).

Salaried employees receive a fixed amount per pay period, regardless of the exact hours worked, which contributes directly to their gross pay. Beyond regular wages, other forms of compensation can increase your gross earnings. These may include bonuses, which are additional payments often tied to performance or company profitability. Commissions, frequently earned by sales professionals, are another common component, calculated as a percentage of sales or revenue generated.

Other taxable income might also appear on your pay stub, such as reimbursements for business expenses or certain fringe benefits. Reviewing these figures helps ensure your employer has accurately accounted for all your earned income.

Mandatory Deductions and Taxes

After your gross pay is determined, several mandatory deductions are withheld from your earnings. Federal income tax is one of the most significant, and the amount withheld depends on the information you provide on your Form W-4, Employee’s Withholding Certificate. This form helps your employer calculate the correct amount of tax to send to the Internal Revenue Service (IRS) based on your filing status, dependents, and any other income or deductions you anticipate. The more allowances or credits you claim on your W-4, the less federal income tax will be withheld from each paycheck.

Social Security tax, often labeled as OASDI (Old-Age, Survivors, and Disability Insurance) on your pay stub, is another federal requirement. This tax funds benefits for retirees, the disabled, and survivors of deceased workers. For 2024, the employee’s share of Social Security tax is 6.2% of wages up to an annual income limit of $168,600. Once your year-to-date earnings exceed this limit, Social Security tax is no longer withheld for the remainder of the calendar year.

Medicare tax, also known as HI (Hospital Insurance), is coupled with Social Security tax under the Federal Insurance Contributions Act (FICA). This tax helps fund hospital insurance for the elderly and disabled. The employee’s share of Medicare tax is 1.45% of all wages, with no income limit. An additional Medicare tax of 0.9% applies to individual wages exceeding $200,000, or $250,000 for married couples filing jointly, meaning higher earners pay a combined 2.35% on income above these thresholds.

State income tax is a deduction that varies depending on where you live and work, as some states do not impose an income tax. For those that do, the amount withheld is based on state-specific tax rates and withholding allowances, similar to federal income tax. Some cities or localities may also impose their own local income taxes, which will appear as a separate deduction on your pay stub.

Voluntary Deductions

Beyond mandatory taxes, your pay stub may show several voluntary deductions, which are amounts you have authorized your employer to withhold. Health insurance premiums are a common voluntary deduction, representing your contribution towards your medical, dental, or vision coverage. These premiums can be deducted on a pre-tax basis, meaning they are taken out of your gross pay before income taxes are calculated, which can reduce your taxable income. Alternatively, they might be deducted post-tax, impacting only your net pay.

Contributions to retirement plans, such as a 401(k) or 403(b), are also voluntary deductions. Pre-tax contributions to a traditional 401(k) reduce your current taxable income, while Roth 401(k) contributions are made with after-tax dollars but offer tax-free withdrawals in retirement. Many employers also offer deductions for life insurance or disability insurance premiums, providing financial protection for you and your family. The specific type of plan and your elected coverage determine the amount withheld.

Union dues are another voluntary deduction for employees who are members of a labor union, covering the cost of union membership and representation. Some employers facilitate charitable contributions through payroll deductions, such as donations to the United Way or other non-profit organizations. While most voluntary deductions are elected by the employee, certain situations may lead to involuntary deductions known as garnishments. These can include court-ordered payments for child support, alimony, or defaulted student loans, which are legally mandated to be withheld from your earnings.

Interpreting Overall Pay Stub Information and Net Pay

Beyond the breakdown of earnings and deductions, your pay stub provides important identifying and summary information. At the top, you will find your employee information, including your full name, address, employee identification number, and often a partially masked Social Security Number. The employer’s information, such as the company name, address, and Employer Identification Number (EIN), is also present.

The pay period dates are crucial for understanding the timeframe your earnings cover. This includes the “pay period beginning” and “pay period ending” dates, which define the work period. The “pay date” indicates when your payment was issued.

Year-to-Date (YTD) information is a summary of all financial activity from the beginning of the calendar year up to the current pay period. This section provides cumulative totals for your gross earnings, all mandatory and voluntary deductions, and taxes withheld. YTD figures are especially important for tracking your annual income and contributions, helping you plan for tax season and monitor your progress toward retirement savings goals.

Finally, net pay is the actual amount of money deposited into your bank account or issued as a check. This is calculated by taking your gross pay and subtracting all mandatory taxes and voluntary deductions. Reviewing your net pay in conjunction with the detailed breakdown ensures all calculations are accurate.