What Is the Purpose of a Paycheck Stub?

A paycheck stub, also known as a pay statement or wage statement, is a document that provides a detailed summary of an employee’s earnings and deductions for a specific pay period. It offers financial transparency, allowing individuals to understand how their total earnings are calculated and what amounts are withheld. This itemized statement reflects both money earned and any amounts subtracted before the final take-home pay is disbursed.

Components of a Paycheck Stub

A paycheck stub displays several pieces of information. It begins with identifying details such as employee name and address, and employer name and address. The pay period dates, specifying the start and end of the pay cycle, along with the pay date, are also indicated.

The stub details earnings, starting with gross wages, which represent the total amount earned before any deductions are taken out. For hourly employees, this section shows hours worked and the corresponding pay rate, including any overtime. After all deductions are applied, the remaining amount is the net wages, also known as take-home pay. Pay stubs also include year-to-date (YTD) totals for both earnings and deductions, providing a cumulative overview from the beginning of the calendar year to the current pay period.

Common Withholdings and Deductions

Mandatory payroll taxes are a significant portion of deductions from an employee’s gross pay. Federal income tax is withheld and calculated based on an employee’s W-4 form, which indicates filing status and other factors. Many states also require state income tax withholding.

Federal Insurance Contributions Act (FICA) taxes, comprising Social Security and Medicare, are mandatory. Social Security taxes contribute to retirement, disability, and survivor benefits; Medicare taxes fund healthcare for eligible individuals. Beyond these required taxes, employees may have voluntary deductions for benefits they choose to participate in. These often include health insurance premiums, contributions to retirement plans like a 401(k) or 403(b), and union dues. Some deductions, like health insurance and retirement plan contributions, may be pre-tax, meaning they reduce the amount of income subject to federal and state income taxes. Other deductions include wage garnishments or child support payments, which are legally mandated withholdings.

The Value of Your Paycheck Stub

Paycheck stubs offer several practical benefits for employees. They are valuable for personal financial record-keeping, assisting with budgeting and tracking income and expenses. Regularly reviewing a pay stub allows employees to verify the accuracy of their pay, ensuring that hours worked, pay rates, and all deductions are correct.

Paycheck stubs are essential for tax preparation, as they provide the necessary information for filing income taxes and for comparing against year-end tax forms like the W-2. A pay stub serves as official proof of income, frequently required when applying for various financial services. Lenders often request recent pay stubs for loans such as mortgages, car loans, or personal loans to assess an applicant’s ability to repay. Reviewing the stub provides transparency regarding contributions to health insurance, retirement plans, and other benefits, helping employees understand their overall compensation package.