What Are Paystubs and What Are They Used For?

A paystub is a document provided by an employer that details an employee’s earnings and deductions for a specific pay period. It serves as a record of how gross wages are calculated and what amounts are withheld before an employee receives their net pay. This document reflects an individual’s income and the various statutory and voluntary deductions applied to it.

Key Components of a Paystub

A paystub includes identifying information for the employee and employer. Employee details include name, address, and an employee identification number or the last four digits of their Social Security Number. Employer information includes the company name, address, and its Employer Identification Number (EIN).

The paystub indicates pay period dates, showing the start and end of the work period, along with the payment date. Gross pay, the total amount earned before any deductions, is itemized to show regular wages, overtime pay, bonuses, or commissions. This figure represents the full compensation for the pay period.

Deductions are listed, categorized into pre-tax and post-tax. Pre-tax deductions, like contributions to a 401(k) retirement plan or health insurance premiums, reduce an employee’s taxable income. Post-tax deductions, such as Roth 401(k) contributions, wage garnishments, or union dues, are taken out after taxes have been calculated.

Mandatory tax withholdings include federal, state, and local taxes. Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare, are also itemized. Net pay, or take-home pay, is displayed, representing the amount an employee receives after all deductions are subtracted from gross pay. Most paystubs also provide year-to-date (YTD) totals for gross pay and all deductions.

Understanding Earnings and Deductions

Gross pay represents total earnings before reductions, while net pay is the amount an employee receives after all deductions. This difference highlights the impact of taxes and other withholdings on spendable income.

Pre-tax deductions, such as health savings account or traditional 401(k) contributions, reduce taxable income, potentially lowering tax liability. Post-tax deductions are taken from income that has already been taxed. Roth 401(k) contributions, for example, are made with after-tax dollars, meaning qualified withdrawals in retirement are tax-free.

FICA taxes, comprising Social Security and Medicare, are mandatory federal withholdings. For 2024, the Social Security tax rate is 6.2% on earnings up to $168,600, and the Medicare tax rate is 1.45% on all earnings. These taxes fund federal programs providing retirement, disability, and healthcare benefits. Year-to-date totals offer a running tally of earnings and deductions, allowing individuals to track financial progress and verify cumulative withholdings against annual limits.

Practical Uses of a Paystub

Paystubs serve as verifiable proof of income, often required for financial applications like mortgages, auto loans, or apartment rentals. Lenders and landlords request recent paystubs to assess an applicant’s ability to make payments, establishing financial reliability.

These records are valuable for tax filing, aiding in the preparation and verification of annual tax returns. Year-to-date figures on a paystub can be reconciled with information on a Form W-2, which summarizes annual earnings and withholdings. This cross-referencing helps ensure accuracy and can assist in claiming tax credits or deductions.

Paystubs are useful tools for personal financial management and budgeting. Regularly reviewing a paystub helps individuals monitor income flow and understand the impact of deductions on take-home pay, allowing for more informed spending and saving decisions. They also serve as documentation for resolving discrepancies with an employer regarding pay, hours worked, or incorrect deductions.

Accessing and Storing Paystubs

Employees receive paystubs through physical printouts or digital access via secure online employee portals or encrypted email. Online portals require login credentials and allow employees to view, download, or print their paystubs.

Safeguarding paystubs is important due to the sensitive personal and financial information they contain, such as Social Security numbers and bank account details. Whether physical or digital, these documents should be stored securely to prevent unauthorized access. Physical stubs can be kept in a locked file cabinet, while digital versions should be protected with strong passwords and stored on secure devices or cloud services.

Regarding retention, employees should keep paystubs for at least one year or until reconciled with their annual W-2 form. For tax purposes, the Internal Revenue Service (IRS) recommends retaining tax-related documents, including paystubs, for at least three years from the date a tax return was filed, or two years from the date the tax was paid, whichever is later. Some financial professionals suggest keeping these records for up to seven years, especially for complex tax situations or audit concerns.