Reading the stub top to bottom
A pay stub runs in a fixed order on every employer's version. Gross pay comes first: hours times rate for hourly workers, or annual salary divided by the number of pay periods. Next come pre-tax deductions, such as your share of health and dental premiums, traditional 401(k) contributions, and HSA or FSA money. These come out before income tax is calculated, which is why a $100 contribution to a 401(k) lowers your take-home by noticeably less than $100. Then come the taxes, then any after-tax deductions such as Roth 401(k) contributions, union dues or a wage garnishment. What remains is net pay. Beside each line sits a year-to-date column, which is the one to check against your W-2 in January.
The taxes, line by line
- Federal income tax withholding is an estimate based on the W-4 you filled out, and it is trued up when you file your return.
- Social Security takes 6.2 percent of your wages and may appear as OASDI.
- Medicare takes 1.45 percent.
- State and sometimes city income tax follow, except in the handful of states that have none.
Social Security and Medicare together are often labeled FICA. Your employer pays a matching 7.65 percent on top, which is the share freelancers must pay themselves.
Pay schedules and their quirks
Biweekly pay means twenty-six checks a year and semimonthly means twenty-four, so the same salary produces different check sizes. On a biweekly schedule, two months each year contain three paydays. Most employers pay in arrears, a week or two after the period ends, so the first check at a new job may take three or four weeks and may cover only a partial period. Hourly and other nonexempt workers are owed time and a half beyond forty hours in a week under federal law. Bonuses are usually withheld at a flat supplemental rate, which makes the check look small, but the actual tax is settled on your return like any other wages.
Errors worth catching early
Check the first stubs for the right pay rate, the right state, the benefits you actually elected, and the 401(k) percentage you entered. Confirm that retirement contributions reach your plan account within a few days of payday. Payroll mistakes are easy to fix in the first month and tedious to unwind in the twelfth.
Tip Download and keep your final stub of the year. Its year-to-date figures let you verify your W-2, and lenders and landlords ask for recent stubs more often than you would expect.
