If you’re like most people in the United States, your paycheck is deposited directly into your bank account. There’s a good chance you never see the important information that is included on a pay stub, but you should check that information regularly to make sure it’s correct.

Lawmakers passed the Fair Labor Standards Act in 1938. Among other things, it requires employers to keep accurate records of employee time and pay. When you look at the information recorded on what we call a pay stub, it can be confusing as you try to determine the different numbers, acronyms, and financial jargon. Sure, you want to know how much money you made, but there are other important pieces of information that not only impact your paycheck but your life and the lives of others. What is all that information and what does it mean to you?

What is on a pay stub?

A pay stub documents your work, wages, taxes, and other deductions during a specific period. It contains very personal information, so you always want to keep it secure and private. While there may be slight variations in pay stub information from employer to employer, there are four main types of information.

Personal and Check information: Includes your name, filing status (single or married) and your tax ID number according to your IRS w-4 form. It also includes the name of the company, its location, and the dates of the pay period.

Earnings: Shows hours worked and rate of pay. It indicates the amount you earned for the pay period and year-to-date earnings. It also shows pre-tax deductions for different employee benefits you may receive, such as health insurance and retirement contributions.

Deductions: Additional deductions that have been taken out of your paycheck after tax, like group life or disability insurance.

Withholding: The money your employer is required to remove from your paycheck on your behalf, including federal and state income tax payments, unemployment insurance, Social Security, and Worker’s Comp.

Often the most significant deductions you see on your pay stub are mandatory taxes. These include your federal, state, and sometimes local taxes. Most of these are required, but the amount is pre-set or determined by your tax allowances. There is no way to alter these amounts significantly.

Here is a rundown of some of those taxes. Please note that these abbreviations may vary by employer or state.

Mandatory Deductions (required of every worker in the United States)

  1. FED / FIT / FITW / EE: Federal income taxes
    • The amount paid into federal taxes uses your W-4 form, which shows how much you withheld and how many allowances you claim. This process is all managed by the Internal Revenue Service.
  2. OASDI / FICA / SS / SOCSEC: Social Security taxes
    • Every worker pays 6.2% of their gross income into the Social Security fund. In addition, each employer must pay 6.2% per employee.
  3. MED / Medicare: Medicare taxes
    • Every worker contributes 1.45% of their gross income to Medicare taxes. Additionally, every employer pays an additional 1.45% for each employee.
  4. SUI: State Unemployment
    • State unemployment Insurance is a tax-funded program that pays workers who have lost their job.
    • In nearly all states, the employer pays into this fund
    • Three states require that the employee pay into it: Alaska, New Jersey, and Pennsylvania.
  5. Local Taxes (if applicable)
    • Not every community enforces local taxes.
    • Municipalities add a tax based on where people live or work.
    • That tax money goes back into the community for education, police, EMS and fire, garbage, and other local services.

Post-tax deductions occur after your other taxes.

Post-Tax deductions include:

  • Long-term disability (if applicable)
  • Short-term disability (if applicable)
  • Life insurance
  • Garnishments such as child support
  • Roth IRA
  • Charity Donations
  • Union dues

Pre-tax deductions occur before your other taxes, which lessens the amount that can be taxed and the amount owed to the federal government.

Pre-Tax deductions include:

  • Health insurance
  • Dependent care accounts
  • Flexible spending accounts
  • 401(k)
  • Commuting programs (if applicable)
  • Group term life insurance

 Bottom Line

A pay stub is an official record of the time you worked, how much you made, and how much you paid in taxes and benefits. This written record is essential to have on file for when you see a discrepancy, want to ensure payments or garnishments, or witness changes concerning your wages or benefits.

© Fintactix, LLC 2022