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From the Experts at Credit.com

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.

Medicare

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.

Insurance

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.


  • http://www.credit.com/ Credit.com 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?

    • http://www.credit.com/ Credit.com Credit Experts

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

  • http://www.Credit.com/ 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?

    • http://www.credit.com/ Credit.com Credit Experts

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

  • http://www.Credit.com/ 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.

      • http://www.Credit.com/ 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

  • http://www.Credit.com/ 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.

      • http://www.Credit.com/ Gerri Detweiler

        Thanks for clarifying that!

  • sarah

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

    • http://www.Credit.com/ 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?

    • http://www.Credit.com/ 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.

    • http://www.Credit.com/ 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?

    • http://www.credit.com/ Credit.com Credit Experts

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

  • KIMBERLY

    What is the TIP Before Tax amount listed in the Pre-Tax Deductions column for?

  • sheena

    my year to date starts out gross, fica,medfica, fed wth, state what is the medfica and fed wth? what spot do they go on my w-2 to file my taxwes

  • Dianne

    Is your contribution to your insurance, health, dental, short or long term disability deductible on your Federal Tax Return?

    • http://www.Credit.com/ Gerri Detweiler

      Dianne –

      We aren’t able to answer general tax questions. If you need tax help this article may help you find it: The Complete Guide to Finding Tax Help

  • jenn

    after not working for certain company for months i got my w2 online they also have posted all our paystubs. i have one from the end of the year saying make up pay. and then my net pay for that pay stub is over a thousand. does anyone know exactly what this means?

    • http://www.credit.com/ Credit.com Credit Experts

      Your best bet may be to call HR at your former employer to ask. Have you tried that?

  • hihi~~

    What does it mean “Fed Withholding” and “MA Withholding”.
    Fed Withholding showing 0,
    I am from Mass., 0 allowances, single man

    • http://www.Credit.com/ Gerri Detweiler

      It sounds like those boxes reflect funds withheld for state and federal taxes.

  • http://www.credit.com/ Credit.com Credit Experts

    Jessica —
    You should receive a pay stub — or have access to one online. Your company’s payroll or human resources department should be able to help.

    • Jessica Cortez

      Thank you

  • tiffany

    what does mem hosp mean on my pay stub?

    • http://www.credit.com/ Credit.com Credit Experts

      We don’t know . . . but your company’s HR or payroll department will. Ask and they should be able to help.

  • AbryMama

    Does Net Pay Allocation mean that is how much my check will be and where it will be? ( I can view my stubs online before my check has even been deposited and I am confused)

    • http://www.credit.com/ Credit.com Credit Experts

      Sounds like it, but it is always best to check. The number you are looking for is “net direct deposit.” They are often the same, but a pay allocation can also refer to withholding for child support or garnishment.

  • devon

    If your employer wasn’t taking medical or dental expenses out your pay check for over 4 months. Is the employer allowed to take 80% of your check to pay this with it not being your fault at all?

    • http://www.credit.com/ Credit.com Credit Experts

      Devon —
      What state are you in?

  • IB_Sonny

    What does “federal taxable wages this period” mean. This is the first time its showed up on my pay stub.

    • http://www.credit.com/ Credit.com Credit Experts

      Those are the part of your earnings you have to pay federal tax on. Let’s say you make $500 per pay period (your total earnings) but you put $50 per pay period into a 401(k) retirement plan, which is tax-deferred, meaning you pay no taxes on it until you take it out. In that case, your federal taxable wages would be $450 ($500 minus the untaxed retirement contribution). Hope that helps.

  • A.Say5

    As primarily a waitress for 8 years with my most recent employer it would be odd to get paychecks but i always kept my paystubs and clock out slips that showed similar information – hours worked (shiftly, weekly, & pay period) plus tips reported, tips paid out (to the bartender or busser), & sales (averaged & shiftly) it wasn’t until last year, maybe 2013 (i’m looking for my last paystub without this) that a TIP CREDIT is listed under Earnings but I never saw any extra income other than what I was being paid hourly & my tips. We never received any notification of a change with our paychecks/stubs until we noticed the change ourselves and I looked it up online and only see information where its for employers to be able to get money back on their business tax returns. I don’t understand why they are able to claim it as a credit for themselves & make it out to be income for the tipped employees. I am very confused with this. I believe it messed with my tax refunds for 2013 & now 2014s as well as for other employees that need any type of government assistance those looking at our paystubs read it as income as well but it isn’t, they say its just where the employer doesn’t have to pay the $7.25 minimum wage and can continue to pay $2.13/hr because the tip credit amount is what makes us average at least the $7.25. If the employer only pays us the $2.13 because we are fortunate to have made enough average tips to push us over the $7.25 minimum wage why can they claim a tax credit on our income as well as show it like extra income on the employee?

    • http://www.paycepayroll.com/ J Lindenmuth, PaycePayroll.com

      Check your pay stub to make sure that your employer is recording your tips. The Tip Credit could actually mean that they are making an assumption about your tips to get from the $2.13 to $7.25. The FICA Tip Credit (which is what you found online), is different, and is typically not shown on the pay stub.

  • abc

    HI, my mother requested payroll info from her employer which listed the following deductions and we can’t figure out what most of them mean. Does anyone know? She resides & works in Philadelphia, PA for a Doctor who pays her through personal checks and her yearly W2’s are done by a CPA.

    Fica & Medicare
    FWT (Is this Federal withholding tax?)
    PAWT
    CWT (City withholding tax?)
    PUC
    Dental Reimb (Does this mean she has dental insurance coverage through her employer? because, as she states, she has never had dental coverage through her employer)

    Any help is appreciated. Thank you.

    • http://www.paycepayroll.com/ J Lindenmuth, PaycePayroll.com

      > Fica & Medicare – social security and medicare tax

      > FWT (Is this Federal withholding tax?) — yes
      > PAWT — PA Withholding Tax
      > CWT (City withholding tax?) — Most likely the Philadelphia local withholding
      > PUC — This is either Pennsylvania Unemployment insurance (most likely), or Personal Use of (Company) Car (less so)
      > Dental Reimb (Does this mean she has dental insurance coverage through her employer? because, as she states, she has never had dental coverage through her employer) — It depends. She can be reimbursed for dental expenses even without insurance. If this is a negative amount, then it’s a reimbursement that adds to her check. If it is a positive value, then maybe she was incorrectly reimbursed in the prior year and this amount reversed it. Of all the deductions, this would be the one that she should ask her employer about.

  • http://www.paycepayroll.com/ J Lindenmuth, PaycePayroll.com

    These are most likely PA local codes. 2904 is an old internal PA code for Greencastle. This is probably an income tax. I don’t have a record for what municipality 4708 is located with, but this is likely an LST tax (and is most likely a small amount, like $1, $2, or $10).

  • Doug

    Functionally an employer contribution is neither. It doesn’t lower or increase the employee’s taxes and where it shows up on a pay stub just depends on where your pay stub is set up to show memo lines that have zero tax impact.

  • Russ

    What is the rate for State Witholding taxes in CA? There’s a small amount deducted from my paycheck every 2 weeks and I can’t figure out the exact rate. Is it variable?

    • http://www.paycepayroll.com/ J Lindenmuth, PaycePayroll.com

      Yes. State withholding taxes are typically calculated by tax tables that are relatively complex, and incorporate your income, filing status (i.e. single or married), number of dependents, and sometimes other factors.

      For example, in California the tax rate can start as low as 1.1% (if you file as a single filer and income is below $7,749 per year), to as high as 14.63% for incomes above $1,100,000. However, there is not an exact rate that they withhold, which is why you would need to refer to a tax table (CA’s is here: http://www.edd.ca.gov/pdf_pub_ctr/15methb.pdf), or a tax calculator (such as http://www.paycheckcity.com), to determine if your taxes are being withheld correctly.

  • becca

    Does any on know what -cs mean on my check. Stub is that child support????

    • http://www.paycepayroll.com/ J Lindenmuth, PaycePayroll.com

      Is this a deduction, or a tax? If it’s a deduction, it could mean just about anything – most payroll systems allow employers to set up as many deductions as they want, with any description they choose. Child support is a possibility. I’d suggest asking your supervisor or payroll person.

  • ReGina

    How do they determine the amount of income taxes taken from a paycheck?

    • http://www.credit.com/ Credit.com Credit Experts

      It comes from the information you put on your w-4 form when you started work, if you are a regular employee. If you freelance, they likely withhold nothing at all, and all tax payment is your responsibility. Here is a link to the w-4 form: http://www.irs.gov/pub/irs-pdf/fw4.pdf

    • GGGGG

      http://www.irs.gov/pub/irs-pdf/p15.pdf
      If you go to the bottom of that page you’ll find tables that explain how your allowances lead to deductions and how the left over amount is taxed according to the information given on the w-4

  • Michelle Hinton

    What does CSSC MEAN on a payroll deduction?

    • http://www.paycepayroll.com/ J Lindenmuth, PaycePayroll.com

      This could be Child Support South Carolina. If you are not paying child support, then check with your company’s payroll administrator … there’s no standard descriptions for payroll deductions, so it really could be anything.


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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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