Tracking and Budgeting Your Finances: How to Read a Pay Stub

Are you living paycheck to paycheck? If so, you’re not alone; you’re joined by almost 80% of Americans.

If you live paycheck to paycheck, or even if you’re in the just-over-one-fifth that doesn’t, successful budgeting demands an understanding of how to read a pay stub.

From income tax to mandatory and elected withholdings, this guide will help you decipher the code that is your pay stub. Put on your imaginary archeologist hat and let’s dive in like we’ve just discovered a wall covered with hieroglyphs.

How to Read a Pay Stub

Whether your employer generates your paycheck stubs in-house or uses a service like a check stub maker, the elements should be the same. Some of the most common entries on a pay stub include:

  • Regular earnings
  • Federal income tax
  • State income tax (if applicable)
  • Medicare, Social Security/OASDI
  • Health insurance deductions
  • Retirement plan deductions
  • Year-to-date gross pay, deductions, and net pay
  • Current gross pay, deductions, and net pay

Let’s look at these in more detail to learn how to read a paycheck stub.

Regular Earnings

Most start out reading a pay stub with a glance at the regular earnings since it’s often listed first. This is how much money you actually earned for the pay period, whether that’s weekly, bi-weekly, semi-monthly, monthly, etc. If your income isn’t enough to cover an emergency expense, a title loan could help you.

If you’re a salaried employee, this number probably won’t change from paycheck to paycheck. For hourly employees, it might change. It might also include breakdowns of regular hours worked versus overtime hours worked.

The bottom line is: You probably won’t receive this full amount on payday.

Federal and State Income Taxes

Learning how to read your pay stub requires at least a small understanding of how taxes work.

Federal taxes are based on one of two methods: the percentage method or the wage bracket method. You don’t need to know the differences between those unless you’re a payroll accountant, as they’re both simple ways of estimating how much tax you’re going to owe the federal government for the year.

You might owe more or less, and that’s why you might have to pay taxes to come April or you might see a refund. State income tax is often a set percentage as well unless you live in one of those no-income-tax states…you lucky ducks.

Federal or state taxes–both are split between employee and employer.

Medicare, Social Security/OASDI

These are mandatory deductions too. You and your employer split the cost of these, too.

These fund programs like Medicare, Social Security, and disability insurance. Whether or not you want to fund these programs, you have to if you’re a W-2 employee (not a freelancer or contractor, for example).

Voluntary Deductions

We say voluntary, but you can’t really choose not to have health insurance unless you want to pay a penalty…but they’re voluntary in that you have some control over how much is deducted by your choice of healthcare plan.

Another type of voluntary deduction is for a retirement plan. Again, you can choose not to contribute to one, but most people like to because they want to be able to retire someday.

YTD and Current Calculations

YTD stands for year-to-date, and represents all of the money you’ve earned (gross earnings), deducted (taxes, Medicare/OASDI, and voluntary deductions), and received (net pay).

The same is shown for your current pay period. This is where you can see how much you’re actually taking home, reflected in the current net pay amount.

Knowledge is Power

You now know how to read a pay stub. Why not share the information? Spread this guide around on your social media profiles so your friends can accurately budget, too.

Here’s a handy message you can use to share this article: Want to budget better? Learn how to read a check stub.

After all, when the Rosetta Stone was discovered, the archeologists didn’t keep that one a secret.

One more quick note before we say farewell: if you have any other questions about budgeting, take a peek at these articles.


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