If you’re going to ask for a raise, you should know exactly where your current pay goes. Here’s how to read a typical U.S. pay stub, line by line.
Gross pay
What you earned before anything comes out: hourly rate × hours, or your salary divided by the number of pay periods, plus overtime, bonuses or commissions. Check the hours and the rate first. That’s where most payroll mistakes happen.
Pre-tax deductions
Traditional 401(k) contributions, health insurance premiums under a cafeteria plan, and HSA or FSA contributions usually come out before federal income tax. That lowers your taxable wages. This is why “taxable wages” on your stub can be lower than gross pay.
FICA: Social Security and Medicare
According to IRS Topic 751: Social Security and Medicare withholding rates, the employee share is 6.2% for Social Security (up to an annual wage limit that’s adjusted each year) and 1.45% for Medicare, with no wage limit. Employers must also withhold an extra 0.9% Additional Medicare Tax on wages over $200,000 in a calendar year. Your employer pays a matching 6.2% and 1.45% on top, which doesn’t appear as a deduction from your pay.
Federal, state and local income tax
Federal withholding is based on the Form W-4 you gave your employer. If you got a big refund or owed a lot last year, update your W-4. State and local taxes depend on where you live and work.
Post-tax deductions
Roth 401(k) contributions, some insurance, union dues and wage garnishments come out after taxes.
Net pay and year-to-date (YTD)
Net pay is what actually hits your bank account. The YTD columns add up every paycheck so far this year. They’re handy for checking whether your Social Security withholding has stopped after the wage limit, and for budgeting.
Using this when you negotiate
A raise increases gross pay, but your take-home goes up by less after taxes and percentage-based deductions. When you compare offers, compare total compensation, including the employer’s 401(k) match and health premiums, not just the salary. See 401(k) match explained and how to counter a job offer.
This is general information, not tax advice.