A pay stub is the detailed breakdown of your paycheck, showing how your gross pay (total earnings before deductions) becomes your net pay (the amount actually deposited in your account). Key sections include gross wages (hourly rate times hours worked, or salary per pay period), federal and state income tax withholding, Social Security and Medicare taxes (FICA), and voluntary deductions like health insurance premiums, retirement contributions, and flexible spending accounts. Understanding each line item helps you verify you are being paid correctly, predict your take-home pay, plan your budget accurately, and ensure your tax withholding aligns with your actual tax liability.
Pull up your most recent pay stub and walk through each line item, calculating the percentages taken for each deduction and comparing your year-to-date totals against what you expect to see on your tax return.
Your pay stub is a financial document that translates what you agreed to earn into what actually arrives in your account — and understanding the gap between those two numbers is one of the most practically important skills in personal finance.
The starting number is gross pay: your total earnings for the pay period before anything is taken out. For hourly workers, this is your hourly rate multiplied by hours worked. For salaried workers, it is your annual salary divided by the number of pay periods per year (typically 26 biweekly or 24 semi-monthly). This is the number your job offer quoted. Everything that follows is a subtraction from it.
The largest mandatory deductions are taxes. FICA — Federal Insurance Contributions Act — automatically deducts 6.2% for Social Security and 1.45% for Medicare from every paycheck, totaling 7.65%, regardless of your income level or other circumstances. On top of this, federal and state income tax is withheld based on the W-4 form you filed when you started. Withholding is an estimate, not an exact calculation — the actual amount you owe is settled when you file your annual tax return. If your withholding was too high, you get a refund; if too low, you owe the difference.
Then come voluntary deductions: your employer-sponsored health insurance premiums, contributions to retirement accounts like a 401(k), and optional benefits like flexible spending accounts (FSAs) or life insurance. A critical detail: many of these are pre-tax deductions, meaning they are subtracted from your gross pay *before* income taxes are calculated. A $200 pre-tax health insurance premium does not cost you $200 — it costs you $200 minus the taxes you would have paid on that $200. In the 22% federal bracket, it effectively costs you $156.
After all deductions, what remains is net pay — the actual deposit. For many workers, this is 25–35% less than gross pay, sometimes more. This gap catches many first-time employees off guard. Knowing the breakdown lets you do three important things: verify your employer is calculating everything correctly, plan your monthly budget around the right number from day one, and make informed decisions about optional deductions — like whether to increase your retirement contribution, knowing it will cost you less after-tax than the nominal dollar amount suggests.