A pay stub is a detailed record of how your paycheck was calculated. It shows what you earned, what was taken out, and how much money you actually receive. Learning to read it helps you catch errors, plan a budget, and understand taxes and benefits.
For students starting a first job, a pay stub is one of the most important financial documents to understand.
Key Facts
- Gross pay = hourly rate × hours worked, or salary pay before deductions.
- Net pay = gross pay - taxes - benefit deductions - other deductions.
- Overtime pay is often calculated as overtime rate = regular hourly rate × 1.5.
- FICA taxes include Social Security tax and Medicare tax in the United States.
- Year-to-date, or YTD, totals show earnings and deductions from January 1 through the current pay period.
- Pre-tax deductions reduce taxable income, while post-tax deductions are taken after taxes are calculated.
Vocabulary
- Gross pay
- Gross pay is the total amount of money earned before taxes, insurance, retirement contributions, or other deductions are taken out.
- Net pay
- Net pay is the amount of money you actually receive after all deductions have been subtracted from gross pay.
- Deduction
- A deduction is money subtracted from your gross pay for taxes, benefits, retirement savings, or other required or chosen payments.
- Withholding
- Withholding is the amount of money an employer takes from your paycheck and sends to the government for income taxes.
- Year-to-date
- Year-to-date is the running total of your earnings, taxes, and deductions for the calendar year so far.
Common Mistakes to Avoid
- Confusing gross pay with take-home pay is wrong because gross pay is not the amount deposited into your bank account. Always look for net pay to see what you actually receive.
- Ignoring year-to-date totals is a mistake because they help you track annual income, tax withholding, and benefit deductions. These numbers are useful for budgeting and checking tax forms.
- Assuming every deduction is a tax is wrong because some deductions may pay for health insurance, retirement savings, union dues, or other benefits. Read the label next to each deduction before drawing conclusions.
- Not checking hours worked can cause missed pay because payroll errors sometimes happen. Compare regular hours, overtime hours, and hourly rate with your own records.
Practice Questions
- 1 A student works 18 hours at 46. What are the gross pay and net pay?
- 2 A worker earns $16 per hour for 40 regular hours and works 5 overtime hours at 1.5 times the regular rate. What is the total gross pay for the week?
- 3 A pay stub shows high gross pay but much lower net pay. Explain two possible reasons for the difference and how the worker could identify them on the pay stub.