What Important Info Is on a Pay Stub?
Understand your pay stub to gain insight into your compensation structure, withholdings, and overall financial health.
A pay stub serves as a formal record of an employee’s compensation for a specific work period, detailing gross earnings, itemized deductions, and net pay. This document is important for financial record-keeping, allowing individuals to track their income, verify accuracy, and understand how their take-home pay is calculated. Employers also use pay stubs to maintain transparent payroll operations and comply with regulatory requirements.
Identifying Information
Every pay stub includes identifying details for both the employee and the employer. Employee information consists of the individual’s name, address, and an internal employee identification number. The last four digits of the Social Security Number are often included for identification.
Employer information, such as the company name, address, and sometimes the Employer Identification Number (EIN), is also present. The EIN is a unique nine-digit number assigned by the IRS for tax purposes, similar to a Social Security Number for a business.
Earnings Details
The earnings section outlines how an employee’s gross pay is calculated. This begins with the pay period, defining the start and end dates for which the employee is compensated, along with the actual pay date.
Gross pay represents the total amount earned before any deductions are applied. This figure can include regular wages or salary, overtime pay, and additional taxable income like bonuses or commissions. For hourly workers, gross pay is calculated by multiplying the hourly rate by hours worked, with overtime rates factored in.
Understanding Deductions
Deductions are amounts subtracted from gross pay, categorized as either mandatory or voluntary. Mandatory deductions primarily consist of taxes. Federal income tax is withheld based on the employee’s Form W-4, which provides information about their tax situation to ensure the correct amount is withheld.
State and local income taxes are also withheld if applicable, depending on the jurisdiction where the employee lives and works. FICA taxes are mandatory deductions that fund Social Security and Medicare programs. Social Security and Medicare contributions are typically split between the employee and employer, with the employee’s portion for Social Security currently at 6.2% and Medicare at 1.45% of gross wages.
Voluntary deductions are those an employee chooses to have withheld from their pay. These can be pre-tax or post-tax. Pre-tax deductions, such as health insurance premiums, 401(k) or 403(b) retirement contributions, Flexible Spending Accounts (FSAs), and Health Savings Accounts (HSAs), are taken out before taxes are calculated, which reduces the employee’s taxable income. Post-tax deductions, like Roth 401(k) contributions, union dues, or wage garnishments, are withheld after taxes have been calculated and do not reduce taxable income.
Net Pay and Cumulative Totals
Net pay, often referred to as take-home pay, is the amount remaining after all mandatory and voluntary deductions have been subtracted from the gross pay. This is the actual amount an employee receives via direct deposit or check.
Pay stubs also typically include year-to-date (YTD) totals for gross pay and each type of deduction. YTD figures represent the cumulative amounts from the beginning of the calendar year up to the current pay period. These cumulative totals are valuable for financial planning, budgeting, and preparing for tax season.