Pay Stub

A pay stub is the document, paper or electronic, that accompanies a paycheck and itemizes how the payment was calculated for that pay period. It starts from gross pay, the total earned before anything is taken out, and works down through deductions and taxes to net pay, the take-home amount actually deposited. Along the way it usually shows the wages themselves broken into regular, overtime, and any bonus or commission; each tax withheld; each benefit and other deduction; and a year-to-date column for every line. Its purpose is to make the difference between what you earned and what you received legible, so a large gap between gross pay and the deposit is explained rather than mysterious.

The order of operations is the whole point of a pay stub, because it determines what gets taxed. Gross pay does not have taxes taken out of it directly. First come pre-tax deductions, amounts that reduce taxable wages before any tax is figured: traditional 401(k) or 403(b) contributions, the employee share of health, dental, and vision premiums under a cafeteria plan, contributions to a health savings account or flexible spending account, and pre-tax commuter benefits. A subtlety worth knowing: these pre-tax items do not all reduce the same tax base. A traditional 401(k) contribution lowers the wages federal and state income tax are figured on, but it is still subject to Social Security and Medicare tax, so it does not reduce those. A cafeteria-plan health premium and a health savings account contribution lower both the income-tax and the Social Security and Medicare wage base. So a stub can show two different "taxable wages" figures, one for income tax and a slightly higher one for payroll tax. After those deductions the taxes are withheld: federal income tax set by the W-4, Social Security and Medicare tax, and any state and local income tax. Finally, post-tax deductions come out of what is left: Roth 401(k) contributions, wage garnishments, union dues, and some insurance premiums that are not run pre-tax. The number at the bottom is net pay. A traditional 401(k) contribution and a Roth 401(k) contribution are taxed identically for Social Security and Medicare; they differ only for income tax, which is why the traditional one sits in the pre-tax section and the Roth one below the taxes.

Gross pay and net pay are the two endpoints, and the deductions between them are where the money goes. Gross pay is the figure a salary is quoted in and the starting point of every tax calculation; net pay, also called take-home pay, is what reaches the bank account. The gap between them is not a single "tax" but the stack of pre-tax deductions, several distinct taxes, and post-tax deductions. Reading a stub is largely a matter of accounting for that gap line by line, and a surprising deposit almost always traces to one line: a benefit that started, a contribution rate that changed, or a bonus withheld at the flat supplemental rate. The mechanics of the individual taxes belong to the payroll-tax and withholding pages; the stub is where they are shown together.

The year-to-date columns are the part most people ignore and should not. Each line carries a running total for the year, and those totals are how errors surface. Social Security tax stops once wages pass the annual wage base, so a high earner can confirm it correctly ceased. An employee who changed jobs mid-year can check whether too much Social Security tax was withheld across two employers, which is recoverable as a credit. And the year-to-date federal withholding, checked against the expected liability, is the early-warning signal for an under-withholding problem while there is still time to fix it with a new W-4.

There is no federal pay-stub law, which surprises people. The Fair Labor Standards Act, at 29 U.S.C. 211(c), requires an employer to "make, keep, and preserve" payroll records and report from them to the Department of Labor, but that is a recordkeeping duty owed to the government, not a requirement to give the employee a stub. The U.S. Department of Labor confirms the FLSA does not require employers to provide pay stubs. Whether you receive one at all, whether it may be delivered only electronically, and what it must contain are set by state law, which varies widely: some states require a detailed written or accessible statement each pay period, and a few impose no requirement.

A pay stub is read top to bottom as a waterfall from gross pay to net pay, with each step subtracting a category of deductions or taxes.

A hypothetical example for one biweekly period. Priya's gross pay is $4,000. First, pre-tax deductions: a 6% traditional 401(k) contribution of $240 and her cafeteria-plan health premium of $160 come out. Because the two are treated differently, there are two taxable-wage figures. Her income-tax wages are $4,000 minus both, or $3,600. Her Social Security and Medicare wages are $4,000 minus only the $160 health premium, because the 401(k) is still subject to payroll tax, or $3,840. Federal income tax of, say, $540 and state income tax of $180 are figured on the $3,600, while Social Security tax of $238 (6.2% of $3,840) and Medicare tax of $56 (1.45% of $3,840) are figured on the $3,840. Finally, one post-tax deduction, $40 of union dues, comes out. Her net pay is $4,000 minus the $240 and $160 pre-tax deductions, minus $540, $180, $238, and $56 of tax, minus the $40 of dues, which leaves $2,546.

The example shows why the order and the two bases matter. The health premium was subtracted before both income and payroll tax, sheltering it from everything, while the 401(k) escaped income tax but still paid Social Security and Medicare tax. Had the $240 been a Roth 401(k) contribution instead, it would have come out after taxes, in the post-tax section, and income tax would have been figured on $3,840 rather than $3,600. Figures are illustrative.

What a pay stub does for you

• It accounts for the entire gap between gross pay and take-home, so a smaller deposit is explainable rather than alarming.
• Its year-to-date columns let you catch a stopped or duplicated deduction, an over-withheld payroll tax, or a withholding shortfall before year end.
• It is the record you need to verify a 401(k) rate, a benefit election, or the numbers that later appear on your W-2.

Its limits and gaps

• No federal law guarantees you a pay stub, and state requirements vary, so some workers receive little detail.
• The single-period view can hide a trend; only the year-to-date figures show whether withholding is on track for the year.
• It shows the employee's side of payroll taxes but not the employer's matching share, so it understates the full payroll-tax cost of employing you.