How Well Do You Know Your Pay Stub?

If you are an employed individual, you are most likely receiving a pay stub on a regular basis. This pay statement includes important information about your income and how that money is being distributed. You may take a quick look at your net pay, but are you also reviewing and understanding the other key components of your pay stub?

There’s a lot of detailed, and honestly important, information on this seemingly insignificant document. Here’s everything that’s vital to know.

What is a pay stub?

A pay stub is a document that summarizes your total earnings during a pay period and itemizes how the funds were distributed. It essentially documents how much you earned, the amounts that were taken out for taxes and other deductions, and the amount of your take home pay.

What are the key elements that you may see on your pay stub?

In addition to basic personal information such as your name, address and other identifying information, there are several key components to review.

• Current Pay Period and Pay Date: The current pay period is the timeframe for the period in which you worked and earned pay. This may be a weekly, biweekly, twice monthly or monthly timeframe. The pay date is the date on which you are paid for this pay period.
  
  
• Tax Filing Status: This notes the filing status that you selected when completing your Federal W-4 tax form and your State W-4 tax form, if applicable. The W-4 forms tell your employer the amount of tax to withhold from your paycheck based on your marital status, if you claim dependents and/or have other credits, if you have other income that you would like to be taxed, if you expect to claim deductions other than the standard deduction and want to reduce your withholding, any additional tax that you would like withheld each pay period, and if you are exempt from tax withholdings.
  
  In general, you may make changes to your W-4 tax withholding forms at any time.
  
  
• Earnings: This section includes your gross pay, which is the money you earn before any deductions and withholdings are taken out. It details your non-exempt hourly rate or exempt per pay period salary amount, the number of hours recorded as worked in that pay period including overtime or other special time, and the gross pay associated with those hours. It also details hours and pay for non-worked hours such as vacation and holiday time, plus any incentives such as bonus pay. Taxable benefits may also be displayed in this section such as the value of employer paid group term life benefits over the $50,000 IRS threshold.
  
  
• Hourly vs. Salary: Workplaces must give each job a classification of exempt or non-exempt under the rules of the Fair Labors Standards Act (FLSA). The regulation designates what types of jobs may be classified as “exempt” from the requirement of overtime pay when more than 40 hours are worked in a week. The FLSA has several job-related factors that must be considered and met, including work responsibilities, purpose of the work, level of education, skills requiring specialty training, and base salary, before a job can be labeled exempt.
  
  Jobs that do not meet the exempt qualification are classified as non-exempt and qualify for overtime of 1.5 times regular wages for any time worked in excess of 40 hours during a work week. In most workplaces, jobs classified as exempt are paid a set salary each pay period, regardless of volume of hours works. Non-exempt jobs are paid at an hourly rate and pay will vary based on hours recorded each cycle.
  
  
• Deductions: This section may include voluntary deductions you have authorized such as your contributory costs for insurance premiums, flexible spending or health savings account contributions, retirement plan deferrals or other deductions. Wage garnishments for child support or other mandatory withholdings may also be displayed in this area.
  
  
• Taxes: Social Security and Medicare taxes together constitute what’s known as the Federal Insurance Contributions Act, or FICA, tax. At the time of this writing, your Social Security wages are taxed at 6.2% and Medicare at 1.45%. Your employer is also responsible for submitting this same amount on your behalf. This means that a total of 15.3% of your wages are paid into the Social Security and Medicare funds.
  Before calculating your taxable amount, your employer will subtract certain pre-tax deductions from your gross pay such as pre-tax medical premiums, health savings and flexible spending account contributions, plus anything else that may qualify. Note that Social Security taxes are only calculated on your wages up to $160,200 in 2023, which equates to a maximum tax amount to you of $9,932.40. Medicare does not have an income cap.
  
  Federal taxes and state taxes, if applicable, are calculated based on the filing status indicated on your W-4 forms and the current IRS tax table in accordance with your pay period timeframe. Certain pre-tax deductions may also be subtracted from your gross pay before your taxes are calculated such as pre-tax medical premiums, health savings and flexible spending account contributions, 401(k) deferrals and more. In some localities, a local income tax may be assessed as well and is typically determined by the physical address you have provided to your employer.
  
  
• Other: Your employer may include additional details on your pay stub such as your vacation or paid time off balance, the portion that your employer may be contributing towards your insurance premiums, employer matching contributions for your retirement plan or other important information.
  
  
• Year-to-Date Earnings: Your employer may display the year-to-date amounts for your earnings, deductions, taxes and other items on your pay stub to give you a comprehensive view of these items.
  
  
• Net Pay: This is probably the portion you look at the most. Net pay is your take-home pay after all deductions are made.

What is the difference between a paycheck, a payroll card and a pay stub?

A paycheck is a paper check made out to an employee for the net amount of their pay. The employee must cash or deposit it to receive the funds.

A payroll card is a type of pre-paid debit card that is often used by an employee who does not have a checking or savings account with a financial institution but would like to have their pay direct deposited for use via a debit card.

A pay stub is a pay statement that provides details about an employee’s pay for that pay period. This may be provided to an employee regardless of whether they receive their pay via a paycheck, payroll card or direct deposit into a checking or savings account.

Why is it important to review my pay stub?

It’s important to review your pay stub each pay period to ensure accuracy of your pay rate, the number of hours you worked in the pay period, your pay amount for each respective type of earnings, and your deductions. You will also want to monitor your federal and state tax withholding amounts to ensure that you are not over or underpaying, and to avoid any penalties associated with an underpayment.

What are the other benefits of my pay stub?

Your pay stubs may be requested if you are moving into a new home or if you are wanting to rent a new place. Financial lenders and landlords may use your pay stubs to verify your income to ensure you can afford the mortgage or rent payments. Pay stubs may be requested for other types of loans such as a car loan. Government agencies or non-profit organizations may request copies of your pay statements if you apply for financial assistance such as a student loan or other types of aid.

You may also want to use your pay stubs as a guide when creating a personal budget to understand how much money is coming in and where your money is going.

Regardless, it’s always a good idea to review and retain your pay stubs and reach out to your employer if you need a copy of your pay stub or have any questions.

OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.