Should You Keep Your Pay Stubs? Here’s What to Know
Understand the crucial role of your pay records. Get practical insights on managing your income details, knowing when they're essential, and accessing them effectively.
Pay stubs are fundamental financial documents for employees, providing a detailed record of earnings and deductions for each pay period. They offer a transparent look into how gross wages are transformed into net take-home pay. Reviewing pay stubs regularly helps individuals monitor their income and verify compensation accuracy.
What Information is on Your Pay Stub
A typical pay stub presents a comprehensive breakdown of an employee’s compensation. It clearly distinguishes between gross pay, which is the total earnings before any deductions, and net pay, the amount an employee receives after all deductions are applied. Various deductions are itemized, including mandatory federal income tax, state income tax (where applicable), Social Security, and Medicare contributions. Social Security tax is typically 6.2% of gross wages up to an annual limit, while Medicare tax is 1.45% of all gross wages, with an additional 0.9% for higher earners.
Beyond these statutory deductions, pay stubs also detail voluntary deductions such as health insurance premiums, contributions to retirement accounts like a 401(k), and other pre-tax or post-tax withholdings. The stub includes year-to-date totals for both earnings and deductions, providing an ongoing summary of an individual’s financial activity throughout the year. Employee personal information, such as name and address, appears alongside employer details, including the company name and address.
When Pay Stubs Are Necessary
Pay stubs are frequently requested for various financial applications, serving as official proof of income. When applying for a loan, such as a mortgage, car loan, or personal loan, lenders typically require recent pay stubs to verify an applicant’s ability to repay debt. Similarly, landlords often ask for several months of pay stubs to confirm a prospective tenant’s income before approving a rental agreement. This helps them assess financial stability and ensure rent payments can be consistently made.
These documents are also valuable when verifying income for government benefits or social services, ensuring eligibility for assistance programs. If a discrepancy arises with payroll or tax withholdings, a pay stub provides the detailed information needed to reconcile any errors with an employer’s payroll department. While W-2 forms are the primary document for tax preparation, pay stubs can help individuals monitor their withholdings throughout the year and reconcile them against their W-2 at tax time, ensuring accurate tax filings.
How Long to Retain Pay Stubs
It is advisable to keep all pay stubs for at least one year, until the annual W-2 form is received and reconciled against the year-to-date totals shown on the final pay stub of the year. After this reconciliation, pay stubs can typically be shredded, as the W-2 serves as the official summary for tax purposes. However, the W-2 itself should be kept longer.
The Internal Revenue Service (IRS) recommends keeping tax records, including W-2s, for at least three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, in case of an audit. Some financial advisors suggest retaining W-2s for seven years to cover potential amended returns or more complex tax situations. For significant future financial events, such as proving long-term income for retirement planning or a future loan application, some individuals choose to keep W-2s indefinitely.
Alternative Methods for Accessing Pay Information
Individuals who do not have physical pay stubs can often access their pay information through several alternative methods. Many employers provide online payroll portals, allowing employees to view, download, and print their pay stubs electronically at any time. These portals typically store several years of pay history, offering convenient access to detailed earnings and deduction information.
Another common alternative is the annual W-2 form, which summarizes an employee’s total wages and taxes withheld for the entire calendar year. While not as detailed as a pay stub for each pay period, the W-2 provides the necessary information for tax filing and a summary of annual income. Employees can also review their bank statements to verify direct deposit amounts, although this only shows the net pay received. For more detailed past information, contacting the employer’s human resources or payroll department directly can provide access to historical pay records.