Understanding Your First Pay Stub

Your first pay stub can look like a wall of letters and numbers. The good news: once you know what each line means, the wall is actually short. A pay stub is just a receipt for the work you did and where the money went.

This guide walks through every common section in plain English. If you are filing taxes for the first time, also see The Plain-English Guide to Federal Taxes and the IRS's teen-friendly page at irs.gov.

The two big numbers

Almost every pay stub has two huge numbers near the top:

• Gross pay. What you earned before anything is taken out. If you are paid hourly, this is hours worked times your hourly rate. If you are salaried, it is your annual salary divided by the number of pay periods in a year.
• Net pay. Also called take-home pay. This is what actually lands in your bank account after taxes and other deductions.

The difference between the two is what people mean when they say "I made $X but my paycheck was only $Y." That gap is the rest of the stub.

Federal taxes

The Internal Revenue Service (IRS) — the federal agency that collects income taxes — usually shows up on your stub as one of these:

• Fed Income Tax or FIT. Money your employer sets aside for your federal income tax bill, based on the W-4 form you filled out when you started.
• Social Security tax or OASDI. Currently 6.2% of your wages, up to a yearly cap. This funds Social Security retirement, disability, and survivor benefits run by the Social Security Administration (SSA).
• Medicare tax. Currently 1.45% of your wages with no cap. This funds Medicare hospital insurance.

Together, Social Security and Medicare are called FICA taxes — short for the Federal Insurance Contributions Act. The IRS publishes the current rates and caps every year at irs.gov.

State and local taxes

Most states also have an income tax, which shows up as State Income Tax or your state's two-letter abbreviation. A few states do not. Some cities also tax wages — Philadelphia, New York City, and many Ohio cities are common examples. The official source for your state is your state department of revenue.

If you live in one state and work in another, your stub may show withholding for both. The state tax pages on USA.gov Taxes at usa.gov/taxes list each state's site.

Pre-tax deductions

These come out of your gross pay before taxes are calculated, which lowers your taxable wages. Common ones:

• 401(k) or 403(b) contribution. Money going into your workplace retirement plan.
• Health, dental, and vision insurance premiums.
• Health Savings Account (HSA) or Flexible Spending Account (FSA) contributions.
• Commuter benefits for parking or transit.

If your employer matches your 401(k) contribution, the match usually shows up on your stub too. The Department of Labor (DOL) regulates workplace benefits at dol.gov.

Post-tax deductions

These come out after taxes. Common ones:

• Roth 401(k) contribution.
• Disability insurance premiums.
• Union dues.
• Wage garnishments for child support, court-ordered debt, or unpaid taxes.

Year-to-Date (YTD)

Every section usually has two columns: this paycheck and YTD, short for Year-to-Date. The YTD column adds up the year so far. This is helpful for two reasons:

• Tax check. At year-end, your total wages and total federal tax withheld should roughly match the amounts on your W-2 form.
• Benefit limits. The IRS sets annual contribution limits for 401(k)s, HSAs, and FSAs. The YTD column shows how close you are.

Why your first paycheck looks small

Plenty of first-time workers are surprised that net pay is 20-30% less than gross pay. The reason is the stack: federal income tax + Social Security + Medicare + state income tax + (sometimes) local tax + benefits. If you also opted into a 401(k), an HSA, or premium insurance, the gap grows.

That is normal. It is also why a job offer in dollars per year is not the same as cash in your account.

How to fix withholding that looks wrong

If too much is being withheld, you may get a big refund at tax time but live on less every paycheck. If too little is being withheld, you may owe at tax time. Both are fixable by updating your W-4 form with your employer.

The IRS publishes a free Tax Withholding Estimator at irs.gov/individuals/tax-withholding-estimator that tells you what to put on the form. If your situation is more involved (a side job, marriage, a dependent), talk to a trusted adult or a qualified tax pro.

Read your stub every pay period

Even five seconds of looking — gross, taxes, deductions, net — catches a lot of mistakes early. Wrong tax state, missing 401(k) contribution, doubled deduction. Errors compound the longer you ignore them.

If something looks wrong, your employer's HR or payroll team is the first stop. If they cannot resolve it, the Department of Labor's wage and hour pages at dol.gov explain your rights.

A note on the numbers

Tax rates and contribution limits change almost every year. Always pull the current numbers from the IRS, your state's revenue department, and SSA.

Numbers and rules in this article change every year — always check the latest from the IRS, CFPB, and your bank.