Understanding Paycheck, Pay Stub
Understanding Paycheck, Pay Stub

Have you ever taken a minute to read your paycheck? If not, you should. If you have trouble understanding your paycheck, here’s how to read your pay stub.

For many people, the total amount on your paycheck is the first and last number you look at when you get paid. It’s a natural reaction.

That’s the money you have available for paying bills, buying food, and maybe some entertainment for the next two weeks.

If you don’t look at your pay stub, though, you really should. It contains a lot of useful information that can help you plan for the future. If understanding your paycheck is a bit of a challenge, keep reading, and we’ll break down the essentials.

Income Information

If you get a paycheck, your employer must also provide a pay stub. If you get a direct deposit, they might print one out in-house. They can also create pay stubs with an app and email you the digital copy.

At the least, the pay stub will include your income information. It’ll give you the total or gross income for the pay period. It will tell you the net income or the amount on your check.

You might also see non-taxable income, which can include things like mileage reimbursement for drivers.

Federal Income Tax and FICA

An area that makes understanding your paycheck difficult for many people is federal taxes. Federal taxes break down into two main categories: income tax and FICA.

FICA taxes include Social Security and Medicare contributions. Your total earnings per pay period determine your income tax rate.

State and Local Taxes

Depending on where you live, you can also end up paying a variety of state and local taxes. The most common tax is a state income tax, though not every state has one.

State income tax also varies a lot from state to state. For example, Pennsylvania and North Dakota state income taxes hover around 3%, while California’s is over 13%.

Some counties and cities also apply an income tax. In general, county or city income tax is typically at a much lower rate than federal or state income tax.


Many companies offer some level of health insurance to employees. If you participate in your company’s insurance program, they typically deduct your cost from your paycheck.

That deduction typically appears on your check under the heading “Insurance” or “insurance premium.”


Your company may also offer a retirement plan. One of the most common types is the 401(k) plan. In these plans, you contribute a percentage of your income to the plan. Some employers match this amount, and some do not.

The amount that comes out of your pay for the retirement plan, as well as employer contributions, usually appear on your pay stub.

Parting Thoughts on Understanding Your Paycheck

Understanding your paycheck isn’t just a matter of seeing how much you take home. It means understanding the other numbers on your pay stub.

Those numbers can help you understand where your money goes and even do some planning. For example, you can make up your income tax withholdings to make sure you don’t owe money on income taxes in April. You can also boost your retirement withholding if you aren’t maxing out your yearly contributions.

Worried about your retirement? Check out our post on beefing up your retirement plan.