What Is a Pay Stub and Why Is It Important?

A pay stub is a document provided by an employer that details an employee’s earnings and deductions for a specific pay period. It offers transparency, outlining all financial transactions related to an individual’s pay.

Key Information on a Pay Stub

A pay stub includes identifying details for both the employee (name, address, and often the last four digits of their Social Security number) and the employer (company name and address). The pay period dates, specifying the start and end of the work cycle, along with the actual pay date, are also prominently displayed.

Below the gross wages, a detailed breakdown of all itemized deductions is provided, which can include various taxes, benefit contributions, and other withholdings. After all deductions are accounted for, the pay stub shows the net pay, which is the actual amount an employee receives. Additionally, many pay stubs include year-to-date (YTD) totals for both earnings and deductions, offering a cumulative summary of financial activity throughout the year.

Understanding Your Earnings and Deductions

The transition from gross pay to net pay involves various deductions, which are categorized based on their impact on taxable income. Gross pay represents the total amount earned from regular wages, overtime, bonuses, or commissions before any money is taken out. Net pay, also known as take-home pay, is the amount received after all mandatory and voluntary deductions have been subtracted.

Mandatory Tax Deductions

Common mandatory tax deductions include federal income tax, which is a progressive tax funding various government services and programs. Most states also impose a state income tax, though rates and applicability vary across jurisdictions. Federal Insurance Contributions Act (FICA) taxes, comprising Social Security and Medicare, are also withheld from earnings.

Social Security tax, at 6.2% for employees, funds retirement, disability, and survivor benefits, applying up to an annual wage base limit, which is $176,100 for 2025. Medicare tax, at 1.45% for employees, supports the hospital insurance portion (Part A) of the Medicare program and has no wage base limit. An additional Medicare tax of 0.9% applies to wages exceeding certain thresholds, such as $200,000 for single filers or $250,000 for married couples filing jointly.

Pre-Tax and Post-Tax Deductions

Beyond mandatory taxes, deductions are typically classified as pre-tax or post-tax. Pre-tax deductions are subtracted from gross income before taxes are calculated, thereby reducing an employee’s taxable income. Common examples include contributions to traditional 401(k) retirement plans, health insurance premiums, Flexible Spending Accounts (FSAs), and Health Savings Accounts (HSAs). These deductions offer an immediate tax benefit by lowering the amount of income subject to federal and state income taxes. In contrast, post-tax deductions are taken from an employee’s pay after all applicable taxes have been withheld, and do not reduce taxable income; these may include Roth 401(k) contributions, loan repayments, wage garnishments resulting from court orders, or union dues.

Why Pay Stubs Matter

Pay stubs serve as a financial document for individuals, extending their utility beyond simply confirming payment. They are frequently required as proof of income when applying for loans, such as mortgages or car loans, or when seeking to rent an apartment, as lenders and landlords use them to assess financial stability. Pay stubs are also instrumental for tax verification, providing a record of income and tax withholdings throughout the year that can be compared against annual tax forms like the W-2.

Maintaining pay stubs supports personal financial record-keeping, offering a detailed account of earnings, deductions, and contributions to various benefits over time. This record is valuable for budgeting and understanding where money is allocated from each paycheck. Regularly reviewing pay stubs allows employees to identify any discrepancies in pay, hours worked, or incorrect deductions, enabling prompt correction of errors. They also help track contributions to retirement plans, health savings accounts, and other employer-sponsored benefits, ensuring accurate accrual and balances.

Receiving and Managing Your Pay Stubs

Employees receive their pay stubs through several methods. Some employers provide paper stubs attached to a physical paycheck or mailed separately. Increasingly, pay stubs are delivered electronically through secure online employee portals or via email. Accessing online stubs requires logging into a dedicated payroll or human resources system, where employees can view and download their statements.

It is advisable to retain pay stubs for a certain period, generally at least until annual tax returns are filed and reconciled with the W-2 form. The Internal Revenue Service (IRS) suggests keeping tax-related documents, including pay stubs, for at least three years from the date a tax return was filed, which aligns with their audit window. Secure storage of pay stubs is important due to the sensitive personal and financial information they contain. Whether in physical form or as digital files, ensuring these documents are protected from unauthorized access helps safeguard personal data.