Understanding Your Paycheck Stub

What does your pay stub tell you, and how can you better optimize your financial situation based on it? Financial educator and paraplanner Tina Wood-Wentz explains how to use this tool to your benefit.
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By Tina Wood-Wentz

What is your pay stub?

Your pay stub is a document that describes what money you earned during the pay period and year-to-date, and how that money was allocated.

When you got your first part time job as a teenager, your pay stub was pretty simple – you got an hourly rate, for a dozen or so hours a week, and there was a check on the bottom that you tore off and deposited at your banking institution. Other than making sure you got the total dollar amount you expected, this document was so simple and intuitive that you likely ignored it.

But now maybe you’re working a professional job, and things have gotten more complicated. Great! That’s why we’re here to help.

Depending on your earning situation and your employer, this document may now contain a lot of additional information. There is no standard required format for a pay stub the way there is for your tax forms, so that makes it more complicated to provide an overview. Your employer may also provide two different types of pay stub at each pay date: one with just the information relevant to this pay day, and one with this pay day’s information in addition to all of the year-to-date (YTD) information. Take a look at your own pay stub and then do an internet image search for pay stub to get an idea of the plethora of potential options.

What are the headers on your pay stub?

The top of your pay stub should include your employer’s name and address, your name and address, your net pay, a check number, and the date of payment. It may also include part of your Social Security number and an employee number, along with a statement of that net-pay being non-negotiable.

What should you look for?

First, look for your earnings. This line or section should include the number of hours you worked during the pay period, and the amount earned from that work. If it doesn’t also include your hourly pay rate, you can calculate that hourly rate by dividing the amount earned by the hours worked to get your dollars per hour. Especially when you start a new job, or you have just received a raise, make sure you double check your hourly rate or per-pay-period dollar amount is what you expected it to be. Nobody is as motivated to make sure you’re paid properly as you are!

Second, look for what sections your pay stub is divided into. There is no standard layout requirement for how all of the components of pay stubs are displayed, so this part varies widely. It may be divided into sections and subheadings such as:

· Summary – Total gross is the amount earned. Total non-cash is the amount of benefit that your employer provided that wasn’t something you could put in the bank but it was considered a taxable benefit. A common example is the value of employer-paid life insurance for policies above $50,000.

· Earnings – Regular is your regular pay. Paid Time Off or Vacation or Sick Time are for any hours of this type that you used during this pay period. Lump sum FLSA is a nondiscretionary lump sum bonus that has special federal tax withholding requirements under the Fair Labor Standards Act.

· Taxes – Your federal taxes withheld are based on the W4 you submitted to Human Resources. If your state collects income tax, then your state taxes were withheld based on a similar state-specific form. The employee portion of the Social Security payroll tax is a consistent 6.2% for the first $142,800 in 2021. This threshold is known as the Social Security wage base. The employee portion of the Medicare payroll tax is 1.45% without a cap, with an extra 0.9% Additional Medicare Tax added to income above $200,000.

· Pretax deductions – This section is really valuable for seeing what types of tax-advantaged accounts and benefits you are currently taking advantage of. If you are looking to reduce your current taxable income now, this is the section you want to maximize! Additional benefits of this section – you can see if you’re on track to contribute the amount you expected for various accounts for the year (such as on track for $5000 contributed to your DCFSA (dependent care flexible spending accounts) if that was your pre-election), and you can make sure that you’re enrolled in the health insurance plan you thought you were or check the name of the plan if you weren’t sure.

· After-tax deductions – These are elections you have made that are not current (and may never be) tax savings, but they are things you’re paying for out of your paychecks. Roth 401(k)/403(b) contributions would be a line item in this section.

· Company deductions – This is how much your company has contributed in matching funds to your defined contribution retirement account. While you’d think this section should include your company’s pension contribution, if they make one, it doesn’t. That’s because of pension contributions being defined benefits, not defined contributions, so it doesn’t show up here.

· Auto Deposit Distributions – How much money is headed where, by direct deposit.

Other organizational layouts are possible, but no matter which organization system your pay stub is laid out in, the same pieces should be present if they’re relevant for your situation.

What else might be on your pay stub?

Some employers include your vacation or PTO balance, your sick days balance, and/or your short term disability balance. They might even describe each of those in three categories: hours used this period, hours accrued (earned) this period, and remaining balance.

Depending on your employment situation, your pay stub may be attached to an actual pay check. But for many whose companies only do direct deposit, your money will already be on its way to your bank or credit union by the time you receive your pay stub.

Pro Tips

There are several reasons to save a copy of your last pay stub of the year.

· For your tax files: Unfortunately, it is possible to be issued an incorrect W2, and the only way to determine if your W2 is incorrect is to compare it with your final pay stub of the year. But don’t expect there to be an entry-by-entry match between your pay stub and your W2.

· For your 401(k) contribution: Because of the timing of payout by your employer
versus arrival at your 401(k) custodian, the contribution amount for the
calendar year can be reported incorrectly by your custodian. How much you contributed within a tax year is based on date of payout by your employer.

· For your 401(k) match: If your employer provides a match to your 401(k) contributions, you can calculate if you earned the percentage you expected, as well as see what that dollar amount is.

o Exception - This part only works if your employer matches on a paycheck-by-paycheck basis. If your employer offers a true-up on their match after the calendar year, that’s great, but then the information on your last pay stub of the year could be incomplete as true-ups are usually completed in Q1 of the following year.

· Calculating your total tax rate: It can be enlightening to take the sum amount of federal income total tax (1040 line 24) and state income total tax from your tax returns, add your Social Security and Medicare taxes withheld as itemized on your pay stub, and divide that sum by your total gross earnings.

The Total Compensation Statement
In addition, some large employers also provide a Total Compensation Statement to their employees, well after the year has ended. As a total compensation statement includes more than would appear on your pay stub, this document provides additional information and should also be carefully studied. It may cover:

· Amount paid in the year. Possibly also hourly rate.

· Medical benefits, paid for by the employer and the employee.

· Flexible spending accounts or savings accounts, such as health savings accounts (HSA), health care flexible spending accounts (HCFSA), and dependent care flexible spending accounts (DCFSA).

· PTO, vacation, sick leave, military pay, jury duty pay, and any other type of paid leave.

· Retirement benefits, such as the 401(k)/403(b), the match amount contributed on your behalf, and pension plan contributions.

· Life insurance

· Disability insurance

· Wellness benefits, including an employee assistance program (EAP).

· Educational assistance programs

· And any additional benefits your employer provided or made available to you.


Your pay stub can be very informative on what pay and benefits you are receiving from your employer, and your annual tax implications. Have you verified your current pay rate to be what you expected, after your employer communicated your most recent raise or pay cut? What new-to-you information can you unearth from yours?

About the author: Tina Wood-Wentz

Tina Wood-Wentz wants to help you feel comfortable understanding your financial situation, and using your money as a tool for feeling more secure about your life. She is a financial educator, paraplanner, and founder of Wood Financial Services LLC. With an extensive background that includes whitewater kayak instructor, data scientist, tax preparer, and board member for many non-profits, Tina brings a passion for understanding numbers along with helping and educating others.

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