How to Read a Paystub

Gross pay is the total amount you earned before any deductions are taken out, based on your hourly rate multiplied by hours worked, or your salary divided across pay periods. Net pay, sometimes called take-home pay, is what actually gets deposited into your bank account after deductions.

For example, if your gross pay for a two-week period is $2,000 and total deductions are $450, your net pay would be $1,550. Budgets should generally be based on net pay, since that is the amount actually available to spend or save.

Most paystubs list several tax-related deductions. Federal income tax withholding is an estimated amount sent to the government on your behalf, based on the information you provided on a withholding form when you were hired. State and local income tax withholding may also apply depending on where you live and work.

In addition, most paystubs show Social Security and Medicare withholding, sometimes labeled together as FICA. These fund federal programs and are calculated as a set percentage of wages up to certain limits set by law.

Beyond taxes, a paystub may list voluntary deductions such as health insurance premiums, retirement plan contributions, or flexible spending account contributions. Some of these are pre-tax, meaning they are subtracted from your pay before taxes are calculated, which can lower your taxable income. Others are post-tax, meaning taxes are calculated first and the deduction comes out afterward.

For example, a traditional 401(k) contribution is typically pre-tax, which is one reason contributing to it can reduce the federal income tax withheld from that paycheck, while a Roth 401(k) contribution is typically post-tax.

Most paystubs include a year-to-date, or YTD, column showing the running total of each category since the start of the calendar year. This can be useful for tracking progress toward retirement contribution limits, checking whether withholding seems on track, or simply understanding total earnings so far in the year.

For hourly employees, a paystub typically shows the number of regular hours worked, the hourly rate, and any overtime hours, which are often paid at a higher rate, commonly time-and-a-half, for hours worked beyond a standard threshold in a workweek under applicable labor rules.

For example, working 45 hours in a week at a $20 hourly rate with time-and-a-half overtime after 40 hours might result in 40 hours at $20 ($800) plus 5 hours at $30 ($150), for $950 in gross pay for that week, before any deductions.

A common mistake is budgeting based on gross pay rather than net pay, which can lead to overestimating how much money is actually available to spend. Another is not reviewing a paystub closely enough to notice an error, such as an incorrect number of hours or an unexpected deduction, both of which are worth raising with an employer's payroll or human resources department if something looks wrong.

It is also easy to overlook how withholding elections affect a paycheck. Adjusting withholding can change take-home pay in either direction and can also affect whether you owe money or receive a refund when filing taxes, so changes are worth understanding before making them.

Pull up your most recent paystub and try to identify each line: gross pay, tax withholdings, any pre-tax or post-tax benefit deductions, and net pay. Compare the net pay figure to what actually lands in your bank account to confirm your budget is built on the right number.