Graphic: Vicky Leta/Images: Shutterstock (In-House Art)
With the convenience of direct deposit, most of us never look at our pay stubs—but maybe we should. Whether you’re earning a salary or an hourly wage, your paycheck contains important information, and may reveal tax errors, accounting mistakes, or that your employer is shorting your wages.
In fact, according to HuffPost, discrepancies on your paycheck are rarely some weird technical error, and are instead a deliberate decision “not to pay a worker who is entitled to overtime overtime, or not to pay the worker as agreed, or to dock somebody’s pay illegally.” Here’s what you need to know to make sense of your paycheck so you can make sure you’re always getting every penny you’re owed.
How to read your paycheck
Your pay stub contains three main sections: (1) your pay, (2) your taxes, and (3) other deductions that are being made.
In the pay section, what numbers you see depends on whether you’re salaried or earning an hourly wage. Salary works will see their salary for the pay period, while hourly workers will see their hourly rate and number of hours worked. It’s important for hourly wage workers to keep a close eye on the number of hours listed, making sure that any overtime is reflected as well.
If you’re only going to check one line on your paycheck, make it the gross pay (or gross earnings). This is the total amount of money you earned during the pay period. If the gross pay is wrong, you can assume everything else on the paycheck is wrong too.
In addition to gross pay, you’ll see a line for net pay. This is the amount you actually take home after your employer deducts taxes and benefits.
Some other things to know: If you see “YTD” next to your pay, this is the total amount of wages you’ve been paid from the beginning of the year to the end of the pay period on the check. If your employer owes you wages, look for your retroactive payout under “back pay.”
The tax section of your paystub looks more complicated than your pay, but it breaks down into three types of taxes: federal income tax, state and local taxes, and FICA.
Federal income tax. This amount is deducted each pay period rather than as one giant lump when you file taxes.State and local taxes, or SALT. Most state income taxes are deducted in the same way as your federal withholding, although state tax rates do vary significantly from state to state.Federal Insurance Contributions Act, which will be shortened to FICA. Both you and your employer must contribute to OASDI and Medicare taxes. (OASDI stands for Old-Age, Survivors and Disability Insurance program—aka, Social Security taxes). According to the IRS, the current basic rate is 6.2% of your gross income for Social Security and 1.45% for Medicare.
In addition to all the taxes taken our of your gross pay, you’ll see other deductions, which are usually from your workplace benefits:
Note: Some of these deductions may be “pre-tax,” which means they’re taken from your gross pay before the taxes are applied—which leads to more money for you to take home.
What else you need to know
If you have questions about any terms, check out this full glossary from the IRS. And if you notice an issue with your pay, reach out to your HR department. Protections like the Fair Labor Standards Act and state laws require employer transparency on all your pay, but errors happen—whether or not they’re nefarious. Understanding the information on your pay stub is crucial to understanding where your money is going, but few of us are actually vigilant.