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From the Experts at

How to Read Your Paycheck: Understanding Your Pay Stub

by Lucy Lazarony

Understanding Your Pay Stub

Twice a month, you receive a pay stub chock-full of important financial and tax information. If you don’t know how to interpret the data on your paycheck, you might be accidentally losing money.

Here are our expert tips for reading your pay stub:

A pay stub lists your taxable earnings, the total amount of money that you earned that pay period, and your net pay, the amount of money that you get to take home with you. Your net pay matches the dollar amount listed on the paycheck that you’re so eager to cash.

What accounts for the difference between your taxable earnings and net pay? A whole lot of withholdings.

Every paycheck includes a withholding for federal taxes, state taxes, Social Security, and Medicare. It’s the American way!

Federal Income Taxes

The federal government gets a piece of your income, each and every paycheck.

The amount of money withheld for federal taxes depends on the amount of money that you earn and the information that you gave your employer when you filled out a W-4 form or Employee’s Withholding Allowance Certificate.

On a W-4 form, you may make allowances for yourself, your spouse, and your dependents. For 2008, each allowance that you take reduces the amount withheld from your paycheck for federal taxes by $3,500.

For every allowance that you take, less money gets withheld for federal taxes and more money gets added to your paycheck. Take fewer allowances and a bigger chunk of your income will be withheld for your federal taxes.

State Taxes

Depending on where you live, you may or may not be required to pay a state income tax. As with federal taxes, money for state taxes is withheld with every paycheck.

Social Security

The federal government requires every working American to contribute a portion of their paycheck to Social Security, a system of supplemental retirement programs established in 1935. Every worker contributes 6.2 percent of their gross income directly into the Social Security fund, and every employer chips in an additional 6.2 percent for each employee. The Social Security fund provides benefits to current Social Security recipients.


The federal government requires every working American to contribute to Medicare, a U.S. government insurance plan that provides hospital, medical, and surgical benefits for Americans age 65 and older and for people with certain disabilities. Every worker contributes 1.45 percent of their gross income to Medicare and every employer chips in an additional 1.45 percent on behalf of each employee.

These federal and state withholdings account for much of the difference between your gross income and net income (or take-home pay). But there may be other deductions as well, depending on the programs that you sign up for with your employer.


If you signed up for medical, dental, or life insurance through your employer, your contributions to these plans will be deducted from your pay.

Retirement Savings Plans

Contributions to retirement savings plans such as a 401(k) plan will also be deducted from your pay. When you sign up for a 401(k) plan, you select a percentage of your pre-tax salary that you’d like to contribute to the retirement account. If you choose 5 percent, than 5 percent of your pre-tax pay will be contributed to your retirement account.

Flexible Spending Accounts

A flexible spending plan allows you to set aside pre-tax dollars for medical expenses including health insurance copayments and deductibles and prescription drugs. Contributions to a flexible spending account are deducted from your pre-tax income.

Health Savings Accounts

A health savings account is another way to put pre-tax dollars aside in a special account for medical expenses. To be eligible for a health savings account, you’ll need to select a high-deductible health insurance plan. Contributions to a health savings account are deducted from your pre-tax income.

Each pay stub includes year-to-date fields for each withholding so you can track how much money you’ve paid for taxes and Social Security and Medicare throughout the year. Many employees include a similar listing for contributions to retirement savings plans and health plans.

It’s important to stay on top of this information. Any errors are your responsibility to find and to report to your company’s human resources department. The last you thing you want is for an error to be repeated through several pay periods. If you have questions about any of the information listed on your pay stub, be sure to contact a human resources contact at your company.

A pay stub also lists gross and net income to-date. So you’re able to track just how much money you’re making (your gross pay) and how much money you’re actually taking home after taxes and other deductions (your net pay) throughout the year. You can use this information to build a spending plan, work on reducing your debts or start saving for the future.

The information on your last pay stub of the year should match the information on your W-2 form, which details your wages and taxes paid for the year. Be sure to check.

Some pay stubs include your Social Security number along with your name and address, so it’s important to find a safe place to keep them for your records. A locked drawer or filing cabinet works best.

To learn how to get control of your finances and about budgeting best-practices, read more from our experts by visiting our Personal Finance Learning Center.

  • Credit Experts

    We are not familiar with those. However, it’s likely that your Human Resources Department can help.

  • Payne

    If I’m paying for Medicare employee tax, does that mean I’m eligible for health coverage?

    • Credit Experts

      No, that is a tax that is used to help fund Medicare for people who are eligible, that is, 65 or older.

  • Gerri Detweiler

    Do you mean Medicare tax? Everyone pays that. You can read more in IRS Tax Topic 751 on their website.

  • Loren

    I am a salaried teacher. Our raise occurred in November and my employer went back to August and changed my contract salary. In previous years we were given retro but now they are dividing retro over our remaining checks. Is this all legal?

    • Credit Experts

      Why would it not be if you receive the amount your contract calls for?

  • Gerri Detweiler

    Not sure – have you asked your employer?

    • connotationsCTold

      Gerri this is easier. A lot of people don’t want to impose. And never ask at certain times of the year such as when the W-2s are getting mailed out or the bills are getting mailed out or when our quarterly tax forms are due.

      • Gerri Detweiler

        I am not sure I understand why someone who gets a paycheck shouldn’t ask their employer if they don’t understand it. It may be a busy time of the year, but that’s when employees get these forms and should make sure they are correct and that they understand them.

  • nina

    My pay stub, at the very bottom – says “taxable income – 0″…. Anyone know what this means?

    • connotationsCTold

      Sure the number of dependents you clamed is so large or your income is so small you don’t have any income tax held out. It could also mean you’re what’s called contract labor and the accounting department uses the same check for that as normal payroll.

  • Skepticalbuffalo

    Do you live in Arizona? Lots like AZ withholding. That’d be state income tax

  • Gerri Detweiler

    I am not familiar with this. Have you talked to your payroll administrator?

    • connotationsCTold

      Payroll administrator??? Gerri Gads. I’ve done decades of corporate accounting. New York Dues if it’s filled in with a number I assume you’re a member of a union.

      • Gerri Detweiler

        Thanks for clarifying that!

  • sarah

    What is the tax listed as local. It’s located under YTD information, under wages.

    • Gerri Detweiler

      Not sure what kinds of local taxes are charged in your jurisdiction. Have you asked the person who handles payroll for your employer?

    • connotationsCTold

      City is my guess.. New York City was the first as far as I know for a city income tax then another popped in and did it in the same East coast area. I saw a long list of cities once on line recently that hold out income tax and forget where I saw it.

    • pcenemy

      sarah —– can be anything —- in Colorado we have “occupational privilege taxes’ for working in Denver (5.75/mos) or aurora (4/mos); in Philadelphia we withhold school district taxes which vary by district; in several jurisdictions we withhold either city tax (most cities with taxes are back east) —– tell me what city/county you work in and i’ll tell you what it most likely is

  • connotationsCTold

    if by extra work you mean over time please explain that way.

  • connotationsCTold

    because you live in the USA :)

  • connotationsCTold

    try your accounting department normally we have accountants receivable, accounts payable, and payroll humans. some have secretaries also and any of them might know. you should not need anyone that does journal entries or the head of the department.

  • jay easterling

    i have a year to date HSA pre-tax deduction, but then under after-tax adjustments, the same year to date amount is under HSA add-back…does this mean the employer reimbursing that amount?

    • Gerri Detweiler

      Have you tried asking your employer?

    • Laura Newell

      This could be the employer’s contribution to your HSA but you should check with them.

  • Steve

    Why were my SS withholding amount not the same every pay period (Jan – Dec) in 2014? And by September they stopped being taken out all-together.

    • Gerri Detweiler

      Perhaps you exceeded the wage base limit? More information can be found here: Social Security withholding

  • stacy

    why would my company take “adjustments to net pay” out of my year to date after taxes and it being the exact amount of my previous pay check?

    • Credit Experts

      Have you tried asking HR? We don’t know why your company did that.

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  • Meet Our Expert

    lucy_lazarony GravatarLucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.
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