Don’t know how to read a pay stub? You’re not alone. More than 64 million people in America alone say they either can’t do it or that it gives them fits.
It can seem complicated at first, we’ll admit. However, it is actually quite simple when you break it down line-by-line. In the following article, we’ll be showing you everything you need to know.
Gross Pay
The gross pay consists of what you would make if you didn’t have to pay taxes. The salary number you are quoted or first accept with the initial offer of employment, in other words.
Over time, gross pay will change based on raises and promotions. As it does, the adjustments will change as well. For the purposes of reading your pay stub, all you need to know is gross means your annual salary, hourly wage, etc.
The term withholdings can be used to encompass every deduction from your gross pay. For our purposes, we are just referring to the pre-tax employee-offered deductions that come out of your pay.
These deductions consist of items like payroll deductions for healthcare premiums, 401k contributions, employer-sponsored life insurance, and salary protection policies. You get to select which programs you participate in, and each one will influence taxable income.
State and Federal Income Taxes
State and federal income taxes are derived from what your taxable income is. It also depends on the filing elections you made when filling out your W-2 form.
If you want the government to remove the maximum, file as single with zero dependents even if you plan to file differently during tax season. Each dependent you add will shrink the size of the federal and state line items, but doing so will greatly reduce the chances of a refund when you file.
Employment Taxes
Employment taxes are usually paid 50/50 by you and your employer. If self-employed, you’ll have to shoulder the full amount.
On your pay stub, the employment tax is usually denoted as social security, and it’s currently around 15 percent.
Medicare and Medicaid
Medicare and Medicaid are additional mandatory deductions that go toward government-subsidized health insurance. You also might see a workers compensation deduction included with this deduction or grouped close to it. These deductions are calculated based on taxable income as well.
Net Income
Your net income is also known colloquially as “take-home pay.” It’s the amount you’re left with after all withholdings, taxes, and deductions are made.
The percentage of your net to gross income varies based on tax withholding selections and the programs in which you participate. Generally, you can expect to take home around 70 percent of your gross pay.
One last thing you’re likely to see when you try using the pay stubs maker are any cumulative benefits. That means a running tally on anything you’ve contributed, hours toward vacation/sick time you’ve accrued, and any other benefits your employer provides.
Learning How to Read a Pay Stub Is Empowering
Once you know how to read a pay stub, it becomes easier to know where your money is going and how it’s benefitting you. Pay close attention to your gross pay and what comes out of it.
That includes taxes, benefits, and other withholdings. By learning how to read the stub, you’ll be able to create a game plan to maximize earnings and benefits, which are the core of your compensation package. For more financial tips, check out some of our other posts.

Print Friendly, PDF & Email