Thanks to the convenience of direct deposit, many people never even glance at — much less analyze — their pay stubs or paychecks anymore.
But reviewing the information on your pay slip, which serves as a receipt for the wages you receive each pay period, is more important than you might think. It can help you monitor your retirement savings, for example, and the other employee benefits you’re receiving. It also can allow you to track how much you’re paying in taxes. And if you know how to read a pay stub, you might even spot errors that could cost you money or cause some headaches if they aren’t fixed right away.
Knowing the details of where your wages can be an important part of successfully managing your money.
Key Points
• Pay stubs include essential information like earnings, deductions, and employer contributions, all important for financial planning.
• Regularly reviewing pay stubs can help you identify errors and track benefits and deductions.
• Understanding payroll deductions, both pre- and post-tax, can aid in budgeting and tax planning.
• Understanding employer contributions to benefits and taxes is crucial for evaluating compensation packages.
• Pay stubs may provide additional information, such as paid leave time and loan repayment status.
The Basic Components of a Pay Stub
Federal law doesn’t require that pay stubs be distributed. State laws, however, require pay stubs in 41 states, with different guidelines for the contents. Not only can the details shared about one’s pay and how it’s organized can vary significantly from one state to the next, it may well shift from one employer to the next. Some pay stubs and paychecks have much more streamlined details than others. But some of the basic elements you can probably expect to find on your pay slip include:
• Identifying information about your employer
• Identifying information about you
• The start and end dates of the current pay period
• Information about your earnings
• Information about taxes and deductions from your pay
• Employer-paid taxes
• Employer-paid benefits
This information is important for accurate recordkeeping for you and your employer.
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Personal Information and Pay Period Details
The personal information and pay period details section of your pay stub is typically where the most basic intel can be found, including your Social Security number, tax-filing status, and federal, state, and local withholding allowances.
If you have direct deposit, you also might see the routing and account number for the checking and/or savings account you use for that.
Why It Matters: The top section of your pay stub is probably the easiest portion to skim through — but it’s also worth making sure the information is correct. If your name is misspelled or just one digit of your Social Security number is off, for example, it could cause you problems later. And the IRS recommends reviewing your income tax withholding choices at least once a year, early in the year, to help avoid any surprises when you prepare your income taxes.
Breaking Down Earnings
The earnings section is where many people quickly zoom in to see how much money is coming their way. But it’s not one single number you’ll find in this section. Here’s what the earnings on your pay stub or paycheck can tell you.
Gross Pay vs. Net Pay: What’s the Difference?
You’ll likely be interested in how much you received for a given pay period. When looking for that, keep the following in mind:
• Your gross earnings equal the money you made before taxes and other deductions were subtracted.
• Your net earnings indicate the amount you’re actually paid after those deductions are taken out. So the net figure is the amount of cash landing in your checking account if you have direct deposit and send all your wages there. (And if you don’t, this is the amount you’ll see on your paper paycheck.)
These two figures may appear in different areas on the pay slip, not necessarily at the top. They are important to track: Understanding the difference in your net vs. gross pay can be useful for budgeting, goal-setting, and deciding how much to save from each paycheck.
Regular Wages and Overtime Pay
The earnings section is typically broken down into a few different categories, which may vary depending on, say, whether you’re a salaried or hourly employee. It may include your regular pay rate and how many hours you worked, for example, plus overtime, holiday, and vacation pay rates and hours.
Bonuses, Commissions, and Other Compensation
Some people simply earn a straight salary. But others may have other forms of compensation, such as a commission on sales or a year-end bonus. These amounts and any other forms of compensation will be listed.
Year-to-Date (YTD) Earnings
You can gain further insight onto your earnings when you compare a given pay period’s numbers and YTD, or year-to-date, figures. The YTD figures show how your income is stacking up over the course of the year and can help you track where you are in terms of your expectations for this juncture.
Why It Matters: Checking payment details can help you be sure your hourly wages/salary and other compensation amounts are correct. What’s more, tracking how much you’re earning in other pay categories can be helpful for tax and other planning purposes.
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Decoding Deductions and Withholdings
Here’s where you’ll see your gross earnings shrink down to your net pay, thanks to statutory (or obligatory) and voluntary deductions.
Required Payroll Deductions
The statutory deductions listed on your stub are taxes employers are required by law to withhold from an employee’s pay. These include:
• Federal income tax withholding, which the government uses to pay for school, roads, national defense, and other government programs.
• Federal Insurance Contributions Act (FICA) taxes, which help fund Social Security and Medicare programs. (6.2% of your gross wages goes toward Social Security tax, and 1.45% of your gross wages goes to Medicare tax. Your employer matches these percentages for a total of 15.3%. These percentages can change, as determined by Congress.)
• State income taxes, which will vary depending on where you live and work. Some states have no state income tax, while in other states, tax rates can range from typically higher (California) to lower (Arizona, North Dakota, and Oklahoma).
Elective Payroll Deductions
Other paycheck deductions you may see listed on your stub are for benefits you have a choice about, such as:
• Health and dental insurance premiums
• Life insurance premiums
• Disability insurance premiums
• 401(k) or similar retirement plan contributions
• Charitable giving
• Union dues
Many of these costs may be pre-tax — deducted from your earnings before taxes are calculated — and others will be post-tax. If you aren’t sure whether certain of your benefits are pre- or post-tax and it isn’t clearly defined on your pay stub, you may want to ask someone in human resources, or HR, to break it down for you.
Why It Matters: It’s always a good idea to know what you’re paying for, so you can make choices that maximize your earnings. And understanding which payroll deductions are pre- or post-tax can help with budgeting and tax planning.
Employer Contributions
Knowing how to read this portion of your pay stub will help you see what your employer is paying for on your behalf, outside of your wages. This section may include a base amount paid by your employer for different types of insurance (which you can usually add to at your discretion), as well as any pension information, and the amount your employer is contributing to your retirement plan (based on an agreed-upon match based on your contribution amount).
The amounts your employer pays toward federal and state unemployment taxes may also be listed here with the acronyms FUTA (Federal Unemployment Tax Act) and SUTA (State Unemployment Tax Act).
Why It Matters: Workplace benefits can be a valuable addition to your regular compensation. If you’re thinking about shopping for a new employer — or a competitor has approached you with a job — it can be helpful to compare the salary and benefits package you’re getting from your current company vs. potential offers. Knowing how to read a pay stub or how to read a paycheck can help you evaluate where these aspects of compensation currently stand.
Interpreting Additional Information on Your Pay Stub
Some other types of information that may appear on your stub include:
• Paid leave: The time off you’ve earned minus the time you’ve already taken may be listed under the employer benefits portion of your stub, or these hours (vacation, sick time, personal/flex time) may appear in their own section.
• Loan repayment: If you borrowed money from your 401(k) and set up a repayment plan using payroll deductions, you can look for the current amount paid and year-to-date amount paid in the elective deductions section.
• Wage garnishment: If your employer received a garnishment order (because you have unpaid child support or alimony, taxes, student loans, etc.), that amount may be listed under “deductions” or “other deductions.”
• Notes: This section of your pay stub may contain updates from the company ranging from an upcoming increase in your wages to a heads-up about a coming charity drive.
Why It Matters: Keeping track of these pieces of information — which are often unique to you — can be useful, whether you’re budgeting for the month ahead or planning for a future goal.
Either way, understanding and checking the math that went into getting this final number can help you catch mistakes. And understanding the difference in your net vs. gross pay can be useful for budgeting, goal-setting, and deciding how much to save from each paycheck.
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The Takeaway
There’s a wealth of data on your pay slip that can help you understand and possibly optimize your earnings. You can see how much you’re contributing to your retirement plan and how much your employer might be matching. And you can keep tabs on the other types of employer-paid benefits you’re receiving that go beyond your wages. You also can check to see if you’re still happy with how much is being withheld each payday for federal and state taxes, and if you need to make adjustments so there aren’t any surprises come tax time.
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FAQ
What should I do if I notice an error on my pay stub?
Comparing your newest pay stub to older slips can help you determine if there is, indeed, a discrepancy, and it’s one of the benefits of knowing how to read a paycheck. If you’ve spotted what you believe to be a mistake, it’s a good idea to take it immediately to your employer, such as someone in HR. Make sure the report is documented (you may have to put the issue in writing), and follow up as needed to make sure it’s explained and/or addressed.
How long should I keep my pay stubs?
It can make sense to hold onto pay stubs for at least a year. You may need them for tax preparation or for proof of income if you’re applying for a mortgage or other large purchase.
Can I get a copy of a lost pay stub?
If you’ve lost a pay stub and don’t know where to locate your earnings statements electronically, ask your manager or HR for help logging on to the company website and finding what you need. If you don’t have direct online access to your personal payroll records, you can contact HR or the payroll department for help getting a copy of your pay stub.
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