Understanding Your Pay Stub

Woman on computerMost paychecks come with a pay stub. It's a detailed record of your total earnings (for the pay period that just ended and the year to date), payroll withholdings and deductions from those earnings, and what those withholdings and deductions were for. Understanding your pay stub and knowing where your money is going are essential to effective money management.

What follows is an overview of the types of information that commonly appear on a pay stub. Keep in mind that pay stubs will vary from employer to employer. If you have specific questions about information appearing on your own pay stub, please contact your payroll department.

Common pay stub items

Your gross pay: Includes your taxable earnings before any payroll withholdings or deductions like those described below are taken out. Your pay stub will also show your net pay—what's left after all payroll withholdings and deductions are removed.

Federal, state and local income taxes: The amount of any federal income tax withheld from your earnings is shown on your pay stub along with any state or local income taxes withheld.

Checking your federal income tax withholding: It’s important to check your federal income tax withholding at least once a year and adjust it as necessary. Sometimes changes in your personal and professional circumstances can cause the rate at which tax is being withheld from your earnings to become outdated. You can adjust your withholding by completing and submitting a new federal form W-4.

Deciding how many allowances to claim: You're entitled to a certain number of withholding allowances, based on your projected itemized deductions, number of dependents, certain credits, and adjustments to income for the current tax year, as well as whether you have a working spouse or more than one job. The W-4 form includes a worksheet to help you determine how many allowances you're entitled to. You're permitted to claim fewer allowances than you're entitled to, but this may result in overwithholding, which is money that instead could be used to fund your retirement accounts.

Life events that may affect your withholding: If any of the following circumstances apply to you, you should review your withholding without delay:

  • You have substantial nonwage income (such as interest, dividends or alimony) or the amount of your nonwage income has changed significantly since you last submitted a W-4 form
  • Your filing status is married, filing jointly and your spouse either started or stopped working since you last submitted a W-4 form
  • You or your spouse are working more than one job
  • You’ve had a major life change (such as marriage, divorce, job change or promotion, birth or adoption of a child or the purchase of a new home) that might affect your eligibility for certain tax deductions or credits
  • You expect to owe other taxes, such as self-employment tax or household employment tax, on your federal income tax return
  • There have been tax law changes that may affect the amount of tax you will owe

Getting a new W-4 form: Your human resources department can provide you with a new W-4 form.

Social Security and Medicare taxes: FICA and OASDI both refer to Social Security tax. Your employer normally withholds Social Security tax at the rate of 6.2% of your earnings up to an annual earnings limit. This is your own contribution toward the cost of Social Security, and your employer matches your contribution out of its own funds. An entry for Medicare on your pay stub refers to Medicare tax. Medicare is health insurance for people age 65 or older, or under age 65 with certain disabilities. You and your employer are each subject to Medicare tax at the rate of 1.45% of all your earnings.

Employee benefit plans: You will typically see payroll deductions for medical, dental, or life insurance and any other benefits or forms of protective coverage you've enrolled in at work. Your pay stub also shows whether your premiums for such coverage were deducted before or after taxes were taken out of your earnings. Pre-tax deductions reduce your current taxable earnings. The reduction in your taxable earnings, in turn, reduces the amount of tax you pay.

Your pay stub will also show any contributions you made to your 403(b), 401(k), 457 or other retirement savings plan at work, as well as to any flexible spending accounts you're using to pay for health or dependent care expenses.

Union dues: If you belong to a union, any union dues taken out of your earnings are reflected on your pay stub.

Net Investment Income: Beginning in 2013, certain investment income will be subject to an additional 3.8% surtax, as enacted by the Health Care and Education Reconciliation Act of 2010.

For an individual, the 3.8% surtax is imposed on the lesser of:

  1. “Net Investment Income” (NII)*, or
  2. The excess of “modified adjusted gross income” (MAGI) over a certain threshold amount.

The threshold amount for 2013 is $200,000 for single filers and $250,000 for married joint filers ($125,000 for married filing separately).

For Trusts and Estates, the 3.8% surtax is imposed on the lesser of:

  1. Undistributed NII, or
  2. The excess of adjusted gross income over a threshold that in 2013 will be approximately $12,000

Need Financial Help?

Phone ringing Call us 800-842-2888

Phone with arrowSchedule a callback

Circular people graphic Attend a meeting or seminar 

Experiencing a Life Event?

Changing jobs? You may be moving on, but your money has a home with TIAA-CREF. Learn more

Tools & Calculators

See all 

Financial Essentials
Workshops & Webinars

  • Tomorrow in Focus: Saving for Your Ideal Retirement
  • Money at Work 1: Foundations of Investing

See all 

Be ready with a plan

TIAA-CREF provides retirement plans at more than 15,000 nonprofit institutions.

Learn more

C9992a