Understanding Your Pay Stub

Most paychecks come with a pay stub. Knowing how to read it will help you understand where your income is going so you can better manage your money. Here’s a quick primer on common paystub features and important things to keep up to date. Remember, pay stubs differ from employer to employer. So if you have questions, contact your payroll department.

Common pay stub items

  • Gross pay: Your taxable earnings before any payroll withholdings or deductions (like those described below) are taken out.
  • Net pay: What's left after all payroll withholdings and deductions are taken out of your gross pay.
  • Federal, state and local income taxes: The amount of any federal income tax withheld from your earnings is shown on your pay stub along with any state or local income taxes withheld. Read on for important information about your federal income tax withholding.
  • Social Security and Medicare taxes: FICA and OASDI both refer to Social Security tax. Your employer normally withholds Social Security tax at the rate of 6.2% of your earnings up to an annual earnings limit. This is your own contribution toward the cost of Social Security, and your employer matches your contribution out of its own funds. An entry for Medicare on your pay stub refers to Medicare tax. Medicare is health insurance for people age 65 or older, or under age 65 with certain disabilities. You and your employer are each subject to Medicare tax at the rate of 1.45% of all your earnings.
  • Employee benefit plans: You will typically see payroll deductions for your medical, dental, or life insurance and any other benefits or forms of protective coverage you've enrolled in.
  • Contributions to employer-sponsored retirement savings plans and flexible spending accounts: Shows any contributions you made to your 403(b), 401(k), 457 or other retirement savings plan at work, and to any flexible spending accounts you're using to pay for health or dependent care expenses.
  • Union dues: If you belong to a union, any dues taken out of your earnings are reflected on your pay stub.

Give your federal income tax withholding a yearly check-up to avoid a tax surprise

Here are some tips for you to consider to help bring the tax you’ll pay during the year closer to what you’ll actually owe.
  • Check your federal income tax withholding at least once a year and make changes if necessary. Many life events (like a change in marital status, birth of a child, starting or losing a job, or purchasing a home) can change the amount of taxes you owe.
  • Make sure you’re claiming the right number of allowances. You're entitled to a certain number of withholding allowances, based on your projected itemized deductions, number of dependents, certain credits, and adjustments to income for the current tax year, as well as whether you have a working spouse or more than one job. The W-4 form includes a worksheet to help you determine how many allowances you're entitled to. You're permitted to claim fewer allowances than you're entitled to, but this may result in overwithholding, which is money that could go into savings before you receive any tax refund.
  • To make a change, complete and submit a new Form W-4. Your employer’s human resources department can provide you with the form. You can submit a new Form W-4 any time.
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