How to read a pay stub

Most people look at the net number and move on. The lines above it are where the actual story is: which taxes were withheld and why, what your pre-tax deductions are saving you, and how your employer converts a salary into what lands in your bank account. Understanding the mechanics also lets you catch errors before they compound.

Gross pay

Gross pay is your earnings before any deductions. For salaried employees, it is your annual salary divided by the number of pay periods in the year. Biweekly (26 periods) and semimonthly (24 periods) are the most common schedules. A $65,000 annual salary paid biweekly produces a gross of $65,000 / 26 = $2,500.00 per period.

For hourly employees, gross pay is hours worked multiplied by the hourly rate, plus any overtime. Federal law requires overtime pay at 1.5 times the regular rate for hours worked over 40 in a workweek, per the Fair Labor Standards Act (U.S. Department of Labor).

Federal income tax withheld

This is not your final tax bill. It is a prepayment: an estimate of what you will owe for the year, based on your elections on IRS Form W-4 and the agency's withholding tables. Your actual tax owed is calculated when you file your return. Too much withheld means a refund in April. Too little means you owe the difference (IRS Publication 15-T).

Life changes (marriage, divorce, a new dependent, a second job) should trigger an updated W-4. An outdated form leads to systematic over- or under-withholding every pay period (IRS Form W-4).

Some states withhold income tax as well; the stub will show a separate state line. Rules vary: some states have no income tax on wages, others use flat rates, others use graduated brackets. Check your state revenue agency for the rate that applies to you.

FICA: Social Security and Medicare

FICA (Federal Insurance Contributions Act) covers two separate taxes:

Social Security: 6.2% of your wages, applied up to the annual Social Security wage base. Wages above that ceiling are not subject to Social Security tax for the year. Confirm the current wage base at ssa.gov (the Social Security Administration announces the updated figure each October; as of July 2026, verify the current amount there).
Medicare: 1.45% of all wages, with no earnings ceiling. An additional 0.9% Medicare surtax applies to wages above $200,000 for single filers; this threshold is set by statute and does not adjust annually (Social Security Administration, IRS).

Your employer pays a matching 6.2% for Social Security and 1.45% for Medicare separately. That amount does not appear on your stub, but it is part of your total compensation cost to the company.

Pre-tax benefit deductions

Pre-tax deductions reduce your taxable income before withholding is calculated. Which taxes each type reduces depends on the plan rules:

Traditional 401(k) contributions: reduce federal and state taxable income, but do NOT reduce Social Security or Medicare wages. A $150 biweekly 401(k) contribution cuts your federal taxable wages by $150 but leaves your FICA base unchanged. The IRS sets an annual limit on how much you can contribute pre-tax: confirm the current limit at irs.gov (the IRS announces updates each fall; as of July 2026, verify the current figure there; IRS Publication 15-B).
Health insurance premiums under a Section 125 cafeteria plan: reduce federal and state taxable income AND reduce FICA wages. This is why a health premium deduction cuts more total withholding than a 401(k) contribution at the same dollar amount (IRS Publication 15-B).
HSA and FSA contributions via payroll deduction: same tax treatment as health premiums under Section 125. Both reduce income taxes and FICA wages when run through a payroll deduction plan (IRS Publication 969).

These deductions explain why the "federal wages" figure in Box 1 of your W-2 at year end is lower than your total gross pay for the year. It is not an error. It reflects the pre-tax deductions that reduced your taxable income throughout the year.

Net pay

Net pay is the result after all of the above:

Net = Gross - federal income tax withheld - state income tax withheld - Social Security - Medicare - pre-tax deductions - post-tax deductions

Post-tax deductions come out after taxes are calculated. The most common are Roth 401(k) contributions (which do not reduce taxable wages because they are after-tax by design) and court-ordered wage garnishments.

Net pay is the only number that matters for budgeting. Planning spending from gross income creates a plan that is structurally impossible to follow. See budgeting basics for how to build a spending plan from your actual take-home.

A pay stub, line by line

Illustrative example: $65,000 annual salary, biweekly pay (26 periods), single filer, standard W-4 elections, contributing 6% to a traditional 401(k), enrolled in employer health insurance under a Section 125 plan with a $110 biweekly employee premium.

Gross pay: $65,000 / 26 = $2,500.00
Traditional 401(k) pre-tax (6%): -$150.00. Reduces federal and state taxable wages to $2,350. Does not reduce FICA wages.
Health insurance (Section 125 employee share): -$110.00. Reduces both taxable wages and FICA wages.
Federal taxable wages: $2,500 - $150 - $110 = $2,240.00
FICA wages (Social Security and Medicare base): $2,500 - $110 = $2,390.00 (the 401(k) does not reduce this base)
Social Security (6.2% of $2,390): -$148.18. Applies up to the annual wage base; confirm the current figure at ssa.gov (Social Security Administration; as of July 2026).
Medicare (1.45% of $2,390): -$34.66. No wage ceiling (Social Security Administration).
Federal income tax withheld: approximately $175 for a single filer at this income level under standard W-4 elections, per IRS Publication 15-T withholding tables. Actual amount varies by elections (IRS Publication 15-T).
State income tax: varies by state
Net pay (before state tax): $2,500 - $150 - $110 - $148.18 - $34.66 - $175 = approximately $1,882

The gap between $2,500 and $1,882 is not money that disappears. The $150 is in your 401(k) account. The FICA taxes fund Social Security and Medicare benefits. The federal withholding is a prepayment toward your annual tax bill. Understanding each line removes the mystery and lets you spot the one that is actually wrong when something is off.

Common mistakes

Budgeting on gross instead of net. Plan your spending from net pay only. Gross is a number before your obligations; net is the actual resource available.
Never verifying that 401(k) contributions are deducting. The line should appear on every stub. If it does not, contributions are not going in. Errors happen: check the first stub after enrolling and any time you change your contribution rate.
Confusing FICA with federal income tax. They are separate taxes at different rates, calculated on different bases. Getting a federal income tax refund in April has no effect on the FICA already withheld.
Not updating Form W-4 after life changes. Marriage, divorce, a new dependent, or a second job all change the correct withholding estimate. An outdated W-4 produces either an unexpected tax bill or a year of over-withholding. Update whenever your tax situation changes, per IRS Form W-4 instructions.
Only checking the bottom line. Errors in deduction amounts (wrong 401(k) percentage, duplicate health premium, incorrect rate) show up in the individual lines, not just the final net. Review line items whenever anything on the stub changes.

Earning: the full cluster on income and pay
How to ask for a raise: if your gross pay looks low relative to the market rate for your role, this is where to start
401(k) and IRA: the retirement accounts article covers contribution limits, the Traditional vs. Roth choice, and employer match mechanics in depth
Budgeting basics: how to build a budget on net income, the only number that matters for your spending plan

Sources: Social Security Administration, ssa.gov (Social Security and Medicare tax rates, annual wage base). IRS, Publication 15-B (employer tax guide, pre-tax deductions), irs.gov. IRS, Publication 15-T (federal income tax withholding methods). IRS, Publication 969 (HSA and FSA rules). U.S. Department of Labor, Fair Labor Standards Act (overtime requirements). Last reviewed: July 2026.