How to Read a Pay Stub: Every Deduction Explained

Learning how to read a pay stub means understanding the difference between what you earn and what you actually take home. According to the IRS’s employee paycheck guidance, the average American worker sees roughly 20–30% of gross pay withheld before a single dollar reaches their bank account — a gap that surprises many first-time earners.

That gap matters for budgeting, tax planning, and benefits enrollment. This guide walks through every line item on a typical pay stub — from gross wages and FICA taxes to pre-tax deductions and year-to-date totals — so you can verify accuracy, spot errors, and make smarter financial decisions.

What Is a Pay Stub and What Should It Include?

A pay stub (also called a paycheck stub or earnings statement) is a document from your employer that itemizes your wages and every deduction for a specific pay period. It serves as your official record of compensation and withholding.

Federal law does not require employers to provide pay stubs, but the U.S. Department of Labor’s wage payment guidelines require that certain payroll records be kept. Most states mandate that employees receive a written or electronic earnings statement each pay period.

Standard Fields on Every Pay Stub

Most pay stubs include the employer name and address, the employee’s name and last four digits of their Social Security Number, pay period dates, and the pay date. You will also see gross pay, itemized deductions, and net pay.

Additional fields vary by employer and state. Some stubs list accrued paid time off (PTO) balances, shift differentials, overtime hours, and employer contributions to benefits — information that is equally important to review.

What Is Gross Pay and How Is It Calculated?

Gross pay is your total compensation before any deductions are taken. It is the starting number from which every other figure on your pay stub is derived.

For salaried employees, gross pay per period equals the annual salary divided by the number of pay periods in the year — for example, a $60,000 annual salary divided by 26 biweekly periods equals $2,307.69 per stub. For hourly employees, gross pay equals hours worked multiplied by the hourly rate, plus any overtime.

Overtime and Additional Pay

Under the Fair Labor Standards Act (FLSA), non-exempt employees must receive overtime pay at 1.5 times their regular rate for hours worked beyond 40 in a workweek, per the Department of Labor’s overtime pay rules. Your pay stub should list regular hours and overtime hours as separate line items.

Bonuses, commissions, shift differentials, and tips also appear in the gross pay section. Each is subject to the same tax withholding rules as regular wages, though bonus payments are sometimes withheld at a flat 22% supplemental rate by employers under IRS guidelines.

What Are the Mandatory Tax Deductions on a Pay Stub?

Mandatory deductions are taxes required by law that your employer withholds automatically. You cannot opt out of them. They include federal income tax, FICA taxes (Social Security and Medicare), and, in most states, state income tax.

Federal Income Tax Withholding

Federal income tax is withheld based on the information you provide on your Form W-4. The amount withheld depends on your filing status, allowances, and any additional withholding you request. The IRS Publication 15-T provides the official withholding tables employers use to calculate this figure each pay period.

Filing a new W-4 after a major life event — marriage, divorce, or a new dependent — can materially change how much is withheld. Under-withholding can result in a tax bill plus penalties at filing time.

FICA: Social Security and Medicare

The Federal Insurance Contributions Act (FICA) requires employees to contribute 6.2% of wages to Social Security (up to the $176,100 wage base in 2025) and 1.45% to Medicare on all wages. Employers match both amounts dollar-for-dollar, meaning the total FICA cost on your labor is 15.3% combined — though you only see the employee half on your stub.

High earners pay an extra 0.9% Additional Medicare Tax on wages over $200,000 (single) or $250,000 (married filing jointly), per IRS Topic No. 751. This appears as a separate line on affected employees’ stubs.

State and Local Taxes

State income tax withholding appears on stubs for workers in the 28 states that levy a broad-based income tax. Rates range from 0.1% in Tennessee on investment income to 13.3% in California at the top bracket, per Tax Foundation’s 2025 state tax data. Some cities — including New York City and Philadelphia — levy their own local income taxes as additional line items.

What Are Pre-Tax Deductions and How Do They Save You Money?

Pre-tax deductions are amounts subtracted from your gross pay before taxes are calculated, reducing your taxable income. They are among the most powerful financial tools available on your pay stub.

Common pre-tax deductions include 401(k) and 403(b) retirement contributions, Health Savings Account (HSA) contributions, Flexible Spending Account (FSA) contributions, and employer-sponsored health, dental, and vision insurance premiums deducted under a Section 125 cafeteria plan. Understanding how these work is a core part of knowing how to read a pay stub effectively. For a deeper look at building long-term wealth with these tools, see our guide on Roth vs. Traditional 401(k): What Makes More Sense in Your 30s.

How Much Can You Save?

A worker in the 22% federal tax bracket who contributes $500 per month to a traditional 401(k) saves roughly $110 per month in federal income tax alone — plus applicable state tax savings. The contribution reduces gross pay before the IRS applies withholding rates.

The 2025 HSA contribution limit is $4,300 for self-only coverage and $8,550 for family coverage, per IRS Publication 969 on health savings accounts. Contributions are triple tax-advantaged: deductible going in, tax-free for growth, and tax-free for qualified medical withdrawals.

What Are Post-Tax Deductions on a Pay Stub?

Post-tax deductions are taken from your pay after all taxes have been calculated and withheld. They reduce your net pay but do not lower your taxable income.

Common post-tax deductions include Roth 401(k) contributions (which grow tax-free but are funded with after-tax dollars), life insurance premiums above IRS thresholds, disability insurance premiums, wage garnishments, and voluntary charitable contributions through payroll. Understanding the difference between pre- and post-tax deductions is essential to building a solid personal financial system.

Wage Garnishments

A wage garnishment is a court-ordered deduction that creditors or government agencies can require. Federal law under the Consumer Credit Protection Act (CCPA) limits garnishments to 25% of disposable earnings or the amount by which weekly disposable earnings exceed 30 times the federal minimum wage — whichever is less. If you see an unfamiliar deduction labeled “garnishment” or “levy,” contact your HR department immediately.

What Do Net Pay and Year-to-Date Totals Mean?

Net pay is the amount deposited into your bank account after all deductions — it equals gross pay minus every mandatory and voluntary withholding. This is your actual take-home pay.

Year-to-date (YTD) columns run alongside the current-period figures and show cumulative totals from January 1 through the current pay date. YTD totals are critical for tax planning. They help you verify that Social Security withholding stops once you cross the $176,100 wage base, and they give you an early preview of whether you will owe taxes or receive a refund.

Using YTD Data for Financial Planning

Comparing your YTD federal income tax withheld to your projected annual tax liability is one of the most actionable uses of your pay stub. If those numbers are far apart, adjusting your W-4 mid-year can prevent a large unexpected bill or an interest-free loan to the IRS. This kind of proactive review is fundamental to handling financial setbacks before they compound.

Your YTD gross pay also feeds directly into any income verification needed for loan applications — mortgage lenders, for instance, typically require the most recent 30 days of pay stubs. Keeping digital copies organized and accessible saves time when you apply for products like the ones compared in our best personal loan rates guide.

How Do You Spot and Fix Pay Stub Errors?

Pay stub errors are more common than most workers assume. Knowing how to read a pay stub closely is the first line of defense against payroll mistakes that can cost hundreds of dollars annually.

The most frequent errors include incorrect hourly rates, missing overtime pay, duplicate deductions, wrong benefit elections, and Social Security tax withheld after the wage base has been hit. The American Payroll Association estimates that payroll errors affect 82 million U.S. workers each year — a figure that underscores why passive trust in employers is financially risky.

Step-by-Step Error Check

• Verify that your gross pay matches your agreed salary or hours worked multiplied by your hourly rate.
• Confirm Social Security withholding stops after your YTD wages cross $176,100 in 2025.
• Check that benefit deductions match what you elected during open enrollment.
• Look for duplicate deduction lines — the same benefit code appearing twice is a common system glitch.
• Ensure any recent raise or rate change appears in the correct pay period and not a period earlier.

If you find an error, report it to your HR department or payroll administrator in writing as soon as possible. Under the FLSA, employers must correct wage underpayments and may owe back pay plus damages. Persistent underpayments can also affect your credit score indirectly if cash shortfalls lead to missed bill payments.

Frequently Asked Questions

What is the difference between gross pay and net pay on a pay stub?

Gross pay is your total earnings before any deductions; net pay is what remains after all taxes and deductions have been subtracted. For a worker earning $55,000 annually, net pay is typically $38,000–$44,000 depending on tax filing status, benefits elections, and state taxes.

Why is my federal income tax withholding different each pay period?

Federal income tax withholding can vary if your hours, bonus payments, or gross pay change. It is also recalculated anytime you submit a new Form W-4. The IRS uses a wage-bracket or percentage method table to determine the amount, so even a small change in gross pay can shift the withholding calculation.

What does OASDI mean on a pay stub?

OASDI stands for Old-Age, Survivors, and Disability Insurance — the official name for the Social Security program. The line labeled OASDI on your stub represents the 6.2% Social Security tax withheld from your wages, capped at the annual wage base set by the Social Security Administration.

Can I change how much is withheld from my paycheck?

Yes. You can adjust federal income tax withholding at any time by submitting a revised Form W-4 to your employer. You can also change voluntary pre-tax contributions like 401(k) amounts or FSA elections during your employer’s designated enrollment windows. You cannot opt out of FICA taxes.

How do I read a pay stub if I am self-employed or a contractor?

Independent contractors generally do not receive traditional pay stubs — they receive 1099-NEC forms at year-end and are responsible for paying self-employment tax of 15.3% (the combined employee and employer FICA share). Many contractors create their own earnings records using accounting software like QuickBooks or Wave to track income and estimate quarterly tax payments.

What is a Section 125 cafeteria plan?

A Section 125 cafeteria plan is an IRS-approved employer benefit plan that allows employees to pay for health insurance premiums and certain other benefits with pre-tax dollars, reducing taxable wages. The name comes from Section 125 of the Internal Revenue Code, not any food-related benefit. Most employer-sponsored health insurance deductions appear on your stub under this framework.

How long should I keep my pay stubs?

Financial experts generally recommend keeping pay stubs for at least one year — or until you reconcile them against your annual W-2 form. Keep them longer if you are applying for a mortgage or loan, disputing a payroll error, or involved in any workers’ compensation or disability claim. Digital copies stored securely in the cloud are sufficient in most states.