Effortless Math › Personal Finance › How to Read a Pay Stub
How to Read a Pay Stub
Your first pay stub is the moment the hourly rate stops being the number that matters. This page walks an earnings statement from the top line to the bottom one, with the arithmetic written out, so you can account for every dollar between what you earned and what you were paid.
The three zones of a pay stub
Every earnings statement, whatever the payroll provider, is the same three zones stacked on top of each other. Find them once and every stub becomes readable.
| Zone | What it holds | What to check |
|---|---|---|
| Identification | Employer, employee, pay period, pay date | That the pay period matches the days you actually worked. The pay date is usually later. |
| Earnings | Rate, hours, regular pay, overtime, gross pay | That the hours are right and anything over 40 in a week is paid at 1.5×. |
| Deductions | Taxes, insurance, retirement, and net pay | That the percentages compute, and that nothing appears that you did not sign up for. |
Most stubs also carry a year-to-date column beside the current one. It is a running total for the calendar year, and it is what you use to sanity-check a W-2 in January.
Gross pay, including overtime
Gross pay is everything you earned before anything comes out. For an hourly worker it is the rate times the hours — with one wrinkle. Under federal law a non-exempt employee is owed time and a half for every hour over 40 in a single workweek.
Worked example 1 — hourly with overtime
Devon worked 46 hours last week at $16.00 per hour. He is non-exempt, so 40 hours are paid at the regular rate and 6 are paid at time and a half.
Overtime is not taxed at a higher rate
This is the single most common misunderstanding about a paycheck. Overtime pay is ordinary wages. It can push your annual income into a higher marginal bracket, and a withholding table may hold back more on a big check, but the overtime dollars themselves carry no special tax. The extra earnings usually increase take-home pay, though withholding on one check may rise.
Social Security and Medicare
Two deductions can always be computed exactly, because they are flat percentages. Together they are called FICA.
| Deduction | 2026 rate | Applies to |
|---|---|---|
| Social Security | 6.2% | Wages up to $184,500 for the year. Above that, it stops. |
| Medicare | 1.45% | Every dollar of wages. There is no cap. |
Your employer pays a matching 6.2% and 1.45% that never appears on your stub. If you are self-employed you pay both halves, which is why the self-employment tax rate is 15.3%.
Worked example 1, continued
Devon’s gross pay was $784.00 and he works in Texas, which has no state income tax. His federal income tax withholding, taken from the IRS tables, is $42.00.
Round each deduction to the nearest cent, rounding a half cent up. Payroll systems do the same, which is why a stub can be a penny off from a hand calculation on some weeks.
Pre-tax deductions, and why they matter
A pre-tax deduction comes out before tax is calculated, which lowers the wages the tax is figured on. That is why a $95 health premium does not cost you $95 of take-home pay — it costs you $95 minus the tax you no longer owe on it.
The order matters, and two common pre-tax items behave differently:
| Deduction | Lowers income tax? | Lowers FICA? |
|---|---|---|
| Health, dental, vision premium (Section 125) | Yes | Yes |
| Traditional 401(k) or 403(b) contribution | Yes | No |
| Roth 401(k) contribution | No | No |
The part almost everyone gets wrong
A traditional 401(k) lowers the income your federal income tax is figured on. It does not lower Social Security or Medicare. You pay FICA on that money now and income tax on it later, when you withdraw it. Health-type premiums are different — those lower both.
Worked example 2 — salaried, with pre-tax deductions
Priya earns $46,800.00 a year, paid semimonthly, so 24 checks. She contributes 5% to a traditional 401(k) and pays $95.00 per check for health insurance. Her federal withholding is $138.00.
Net pay, start to finish
Net pay is what lands in the account. The formula never changes:
- Find gross pay. Rate times hours, plus overtime at 1.5× for anything over 40 in a week.
- Subtract pre-tax deductions. Health premiums and traditional retirement contributions.
- Work out the wage base for each tax. FICA wages are gross minus Section 125 premiums. Taxable income for federal withholding is gross minus all pre-tax items.
- Compute Social Security at 6.2% and Medicare at 1.45% of FICA wages.
- Take federal income tax from the stub. It comes from IRS withholding tables, not a percentage, so it cannot be calculated from the rate alone.
- Add state and local tax if your state has it. Nine states do not tax wage income.
- Subtract everything from gross. What is left is net pay.
For Devon: $784.00 − $42.00 − $48.61 − $11.37 = $682.02. He earned $784.00 and was paid $682.02 — 13.0% of his gross pay went somewhere else.
Three errors worth catching
- Medicare computed at 6.2%. The two FICA rates get swapped more often than you would think. If the Medicare line is more than about a quarter of the Social Security line, check it.
- A state income tax line in a state that has none. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not tax wage income.
- Overtime paid at the regular rate. Add up the hours. Anything past 40 in a single week should be at 1.5× unless you are genuinely exempt.
If something is wrong, payroll fixes it — but they fix it when you ask. Keep the stub.
Practice, with answers
Work each one before opening the answer. Use 6.2% and 1.45%, and round to the nearest cent.
1. Sofia worked 24 hours at $13.75 an hour with no overtime. Find her gross pay, Social Security, and Medicare.
Answer: Gross $330.00, Social Security $20.46, Medicare $4.79.
2. Marcus worked 44 hours at $18.50 an hour. Find his regular pay, overtime pay, and gross pay.
Answer: Gross pay $851.00.
3. Andre’s gross pay is $1,600.00. He pays $80.00 for health insurance as a pre-tax deduction. Find the wages his FICA taxes are based on, then Social Security and Medicare.
Answer: FICA wages $1,520.00, Social Security $94.24, Medicare $22.04.
4. Two employees at the same company both have a gross pay of $900.00, but one nets $735.00 and the other nets $681.00. Give two specific reasons this can happen.
Answer: Different W-4 entries produce different federal withholding; one may have a retirement contribution or a health premium the other does not; one may live in a state with income tax and the other not; one may have a post-tax deduction such as union dues or a garnishment.
Check what you learned
Take the 10-question earning and paychecks quiz. It opens on the hub, and you will see your score, the correct answers, and explanations when you finish.
Keep going
- Build a budget from net pay — the number from the bottom of this page is where a real budget starts
- Compound interest, worked out — what to do with the part of net pay you do not spend
- Personal finance glossary — every term on this page, defined in one line
Questions people ask
Why is my net pay so much lower than my hourly rate suggests?
Because the hourly rate describes gross pay, and four things come out of it: federal income tax withholding, Social Security at 6.2%, Medicare at 1.45%, and state income tax if your state has one. Add any health premium or retirement contribution and a fifth to a quarter of gross pay routinely disappears before the deposit.
Is overtime taxed at a higher rate?
No. Overtime is ordinary wages and carries no special tax. A large check can have more withheld because the withholding tables assume that check is typical of every check, but withholding is reconciled when you file your return. Extra earnings usually increase take-home pay.
What is the difference between FICA wages and taxable income on a pay stub?
FICA wages are gross pay minus Section 125 pre-tax premiums, such as health, dental and vision. Taxable income for federal withholding is gross pay minus all pre-tax items, which also includes a traditional 401(k). A 401(k) contribution lowers income tax but not Social Security or Medicare.
Why can I not calculate federal income tax as a percentage?
Federal withholding comes from IRS Publication 15-T tables, which take your filing status, your pay frequency, and what you entered on your W-4. Two people with identical gross pay can have very different withholding. That is why every worked problem gives you the figure.
What should I check on my first pay stub?
That the hours match what you worked; that anything over 40 in a week is at 1.5 times the rate; that Social Security is 6.2% and Medicare is 1.45% of the right wage base; that no state income tax line appears if your state has none; and that nothing is deducted that you did not sign up for.
Part of the Personal Finance hub — ten units, a free pacing guide, and worked examples with answers.