Reading Your First Pay Stub

What a pay stub shows

A pay stub is a record of gross earnings, taxes and other deductions, and net pay for a pay period. It lets a worker verify hours, pay rates, withholding, benefits, and the amount actually paid.

Suppose a worker earns $240 gross and receives $196 net. The $44 difference must be explained by the listed taxes and other authorized deductions; it should not be assumed correct without checking the lines. The number received is net pay or take-home pay, while earnings before deductions are gross pay.

Here are the most common deductions you will see on a pay stub:

Federal income tax: Your employer may withhold federal income tax based on your pay and the information on your W-4. A paycheck can show zero federal income-tax withholding when the calculated amount is zero or the worker validly claimed exemption.

Social Security (6.2%): For most employees, this tax applies to wages up to the annual Social Security wage base. Your employer generally pays another 6.2%. On a covered $240 paycheck, the employee share is $14.88. Limited exceptions apply, including some students employed by their school.

Medicare (1.45%): For most employees, this tax applies to covered wages, with an additional employee tax at higher incomes. On a covered $240 paycheck, the basic employee share is $3.48. Some narrow employment exceptions apply.

State income tax: This varies by state and by the worker's circumstances. Some states, including Texas and Florida, do not tax individual wage income. North Carolina does, so an NC worker may see state withholding.

YTD columns: Most pay stubs have a "Year to Date" column showing how much you have earned and paid in taxes since January 1. This helps you track your total annual income.

Employers withhold required taxes from covered wages and may take other authorized deductions. Use net pay for the cash available in a short-term spending plan, while retaining gross pay and deduction data for taxes, benefits, and compensation comparisons.

When April comes around each year, you file a tax return. If your employer withheld too much during the year, you get a refund. If they withheld too little, you owe the difference. Understanding your pay stub helps you predict which one you will be facing.

Once you understand your pay stub, you can also catch mistakes. If gross pay does not match the hours and rate you expected, ask payroll or your manager for an explanation. Pay-statement requirements vary by state, so do not assume every employer must provide the same itemized document.

What to do with this knowledge

Next time you get paid, pull up your pay stub and find each deduction. Match every line to a reason. Check that your gross pay equals your hours times your hourly rate. Know your net pay before you spend a single dollar. This is the foundation of every good money decision you will make.