What a Pay Stub Tells You About Your Pay

A pay stub serves as a fundamental financial document provided by employers, detailing an employee’s earnings and deductions for a specific pay period. It functions as a comprehensive record of compensation, reflecting the financial transactions between an employer and employee. This document is a standard component of payroll processing, ensuring transparency regarding how an employee’s gross earnings are calculated and subsequently reduced to net pay.

Key Information on Your Pay Stub

Your pay stub contains essential identifying information for both you and your employer. This typically includes your name, address, and an employee identification number if your company uses one, alongside the employer’s company name, address, and Employer Identification Number (EIN). The pay period, indicating the start and end dates for which you are being paid, and the actual pay date are also prominently displayed.

Gross pay is your total earnings before any deductions. It includes regular wages, overtime, commissions, or bonuses. For hourly employees, hours worked are listed to verify calculations. Many pay stubs also feature year-to-date (YTD) totals for gross pay and deductions, providing a cumulative overview.

Understanding Deductions and Net Pay

After gross pay, deductions are subtracted, leading to your net pay. These deductions fall into two main categories: mandatory and voluntary. Mandatory deductions include federal income tax, which is withheld based on the information provided on your Form W-4, and potentially state and local income taxes depending on where you live and work.

Other mandatory deductions are for Social Security and Medicare, collectively known as Federal Insurance Contributions Act (FICA) taxes. For 2025, the Social Security tax rate is 6.2% on earnings up to a wage base limit of $176,100, while the Medicare tax rate is 1.45% on all covered earnings, with no wage base limit. An additional Medicare tax of 0.9% applies to wages exceeding $200,000.

Voluntary deductions include health insurance premiums, retirement plans (like a 401(k) or 403(b)), life insurance, or disability insurance. Some deductions, such as health insurance or retirement contributions, are pre-tax, reducing your taxable income. Other deductions, like Roth 401(k) contributions, are post-tax.

Why Your Pay Stub Matters

Your pay stub is an important document for several personal financial management purposes. It serves as proof of income, which is often required when applying for loans such as mortgages or car loans, renting an apartment, or verifying employment for other financial services. Regularly reviewing your pay stub allows you to verify the accuracy of your pay rate, hours worked, and ensures that the correct deductions are being withheld from your earnings. This helps confirm that taxes are properly accounted for and that benefit contributions align with your expectations.

Pay stubs are also valuable for tax preparation, as they provide a detailed record of your annual earnings and the taxes already withheld, which can be reconciled with your W-2 form at year-end. Understanding your net pay is also fundamental for effective budgeting and financial planning, enabling you to manage your personal finances based on your actual take-home income. It is advisable to retain pay stubs for at least one year or until you have successfully reconciled them with your annual W-2 form. For tax purposes, it is generally recommended to keep tax-related documents, including pay stubs, for at least three years from the date you file your tax return, aligning with the IRS’s audit window.