How to read a paycheck: every line explained
Gross pay, net pay, withholding, FICA and pre-tax deductions can be confusing. Use this line-by-line guide to check your pay stub and spot errors.
A pay stub is a record of what you earned and what was taken out before the money reached your account. The gap between gross and net pay is normal, but the individual lines should still add up.
The top section
Gross pay is the amount earned before deductions. For salaried workers it is usually the annual salary divided by the number of pay periods. For hourly workers it is hours times rate, plus overtime and bonuses.
Net pay is the amount deposited. If gross minus all deductions does not equal net, ask payroll.
Pay period shows the dates the payment covers. Check that hours, overtime and any paid leave match your records.
Taxes
Federal income tax withholding is an estimate based on your Form W-4, pay frequency and the withholding tables. It is not your final tax bill. You settle the difference when you file.
State and local income tax works similarly where those taxes apply. Some states have no income tax; some cities add their own.
Social Security and Medicare are payroll taxes, often grouped as FICA. Employees usually pay 6.2% for Social Security up to the annual wage base and 1.45% for Medicare, with an additional Medicare tax at higher incomes. These are not optional withholding choices.
Pre-tax deductions
Pre-tax deductions reduce taxable wages before income tax is calculated. Common examples include traditional retirement contributions, health insurance premiums and some commuter benefits.
Because they lower taxable income, they also lower current income tax withholding, though they may still be subject to Social Security and Medicare. The exact treatment depends on the benefit.
Post-tax deductions
These come out after tax. Roth retirement contributions, some life insurance premiums, union dues and garnishments are typical examples. They do not reduce taxable income now.
Employer contributions
Some stubs list the employer's share of health insurance or retirement matching. That money is not part of your take-home pay, but it is part of your total compensation. Compare offers on total compensation, not salary alone.
Common errors to check
- overtime rate or hours missing;
- a deduction that should have stopped;
- the wrong number of dependants on withholding;
- a pay period that does not match the deposit;
- a benefit premium that changed without notice.
Keep stubs and compare them to your offer letter and benefits enrolment. A salary calculator can estimate take-home pay, but your stub is the authoritative record. If you are planning long-term savings, see how compound interest works.