How to Read Your Paycheck Stub: Every Line Explained

The first time you compare your annual salary to the amount that actually lands in your bank account, the gap can be a shock. A $60,000 salary does not mean $5,000 a month in your pocket. The difference is explained, line by line, on your pay stub — and once you can read it, you can spot errors, plan your budget, and make smarter choices about benefits and withholding. Here is what every section means.

Gross pay: where everything starts

Gross pay is your earnings before any deductions. For a salaried employee, it is your annual salary divided by the number of pay periods in the year — 26 for biweekly, 24 for semi-monthly, 12 for monthly. For an hourly employee, it is hours worked times your rate, plus any overtime (typically 1.5× for hours over 40 in a week). Bonuses, commissions, and tips also show up here. Every deduction below is calculated from this number.

Federal income tax withholding

This is usually the largest single deduction. Your employer estimates your annual federal tax bill based on the information you entered on Form W-4 — your filing status, dependents, and any extra withholding you requested — and takes a slice out of each paycheck. The US uses a progressive system, so only the income that falls inside each bracket is taxed at that bracket's rate. A common misconception is that “moving into a higher bracket” taxes all your income at the higher rate; it does not. Only the dollars above the threshold are taxed at the higher rate.

FICA: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act, and it funds two programs you will likely draw on later. These are flat percentages, not bracketed:

• Social Security — 6.2% of your gross pay, up to an annual wage cap that rises most years. Earnings above the cap are not taxed for Social Security.
• Medicare — 1.45% of all your gross pay, with no cap. High earners pay an additional 0.9% on wages above a threshold.

Your employer pays a matching 6.2% and 1.45% that you never see on your stub. If you are self-employed, you pay both halves yourself — the “self-employment tax.”

State and local taxes

Most states levy their own income tax, withheld much like federal tax. A handful — including Texas, Florida, and Washington — have no state income tax at all, which is why two people with identical salaries in different states can have very different take-home pay. Some cities and counties add a local income tax on top. If you see a deduction you do not recognize, check whether your municipality has one.

Pre-tax deductions: the order matters

Some deductions come out before taxes are calculated, which lowers your taxable income and therefore your tax. These are some of the most valuable lines on your stub:

• 401(k) or 403(b) contributions — retirement savings, taxed later when you withdraw.
• Health, dental, and vision insurance premiums — usually pre-tax.
• HSA and FSA contributions — for medical and dependent-care expenses.

Because these reduce your taxable income, a dollar contributed to a pre-tax 401(k) costs you less than a dollar of take-home pay. That is the quiet advantage of these accounts.

Post-tax deductions

Other deductions come out after taxes: Roth 401(k) contributions, wage garnishments, union dues, and some insurance products. These do not lower your taxable income, but a Roth account grows tax-free, so the tax is simply paid now instead of later.

Net pay: what you actually take home

Net pay — the “take-home” figure — is gross pay minus every deduction above. This is the number that hits your bank account, and it is the one to budget around. It is also the number our paycheck calculator estimates: enter your salary, filing status, and state, and it breaks down each deduction so you can see exactly where your money goes before you ever get a stub.

Reading the year-to-date columns

Most stubs show two columns: the current period and year-to-date (YTD). The YTD column is worth a glance every few months. It confirms you are on track with retirement contributions, shows how close you are to the Social Security wage cap, and gives you the running totals you will need at tax time. If a number looks off, it is far easier to fix a payroll error in March than to untangle it the following April.