Pay Stubs 101: How to Read A Paycheck

Payday is not just a financial transaction, it's a recognition of an employee's hard work and commitment. Each payday comes with its own receipt—the paystub—which is a record of all hours worked, take-home income, and any taxes and deductions that have been withheld.

But what do all the different sections and numbers on a pay stub mean? This is a question that concerns both the employees and the HR teams responsible for processing payroll. Mishandling or inaccuracies in pay stubs can result in legal and financial repercussions for employers: from disputes, back payments, and fines, to audits, investigations, and reputational damage. This is why it is essential to ensure all payroll processes are handled correctly and compliantly.

With Deel US Payroll, you can run your payroll processes stress-free. Our platform utilizes a powerful engine that automatically calculates your taxes for every state, employment type, and tax bracket. You can manage your entire workforce's payroll in one place: sending en masse payments, remitting tax to the IRS, creating and sending pay stubs, and more.

In this article, we'll discuss the main contents of a pay stub, what they mean, and how they are calculated.

What is a pay stub?

A pay stub is a document issued by the employer to the employee at the end of a pay period (often biweekly or monthly). A pay stub contains a breakdown of earnings, taxes, and deductions for the purpose of transparency and recordkeeping.

There are several core sections that must be included in every payslip:

• Employee information: Name, pay period, and pay date
• Gross pay: The total amount of income the employee earned before deductions
• Deductions: Any taxes, benefit premiums, and garnishments
• Net pay: The employee's total ‘take-home’ earnings after deductions
• Employer information: The employer's name

The pay stub formatting might vary depending on providers, but the core sections remain consistent. Watch our short video for a quick overview of the anatomy of a pay stub:

How are different types of earnings displayed on a pay stub?

A pay stub typically contains an earnings section that features the employee's gross pay and a breakdown of how it was calculated. The net pay is usually displayed separately, at the top or bottom of the pay stub.

Gross pay

Gross pay includes all income earned from a specific employer over a given pay period. This depends on the type of employment, the employer policy, and the employee's job title, and typically includes compensation such as:

• Base salary or wage
• Overtime pay (OT)
• Bonuses
• Any income from commissions
• Holiday pay (if the employee worked holidays during the pay period)
• Shift differentials or hazard pay (additional pay for less desirable shifts/working hours, or for completing high-risk jobs)
• Other taxable income (such as travel allowances)

Net pay

This is the amount the employee receives after all relevant deductions have been subtracted from their gross pay. The employer is required by law to withhold certain deductions (for example, state and federal income taxes). However, other deductions are optional, such as contributions to an employer-provided retirement or health plan.

Find out more about the different statutory and voluntary benefits offered by employers with our article on the topic.

What do the different deductions on a pay stub mean?

In a pay stub, taxes and deductions (compulsory or optional) may be listed separately or in the same section. In general, these include the following:

Federal, state, and local taxes

In the US, all taxpayers are subject to federal income tax (FIT), with most states (with the exception of nine) and some jurisdictions (such as New York City and Philadelphia) also imposing their own levies on top of the federal ones.

Employers collect W-4 forms from all employees to determine how much tax each employee needs to pay (based on marital status, dependents, income level, and other factors). The correct sum is then withheld by the employer with each paycheck and reflected in the pay stub the employee receives.

For more information on how US federal, state, and local income taxes work, read our comprehensive 2025 explainer on the topic.

Social Security and Medicare contributions

Apart from income taxes, employees are also required to pay Federal Insurance Contributions Act (FICA) taxes. These include:

• Social Security: This deduction is 6.2% of an employee's gross salary up to an earning limit ($160,200 USD per annum for 2025), and finances certain benefits such as disability or retirement benefits
• Medicare: Set at a 1.45% rate (with an additional 0.9% for those earning over $200,000/year), Medicare tax funds the federal insurance program for people over 65

Together, these FICA taxes amount to 7.65% of an employee's gross pay, and show up in every pay stub. Employers are required to match employees' FICA contributions dollar-for-dollar, but pay stubs don't usually reflect that information.

Voluntary employee contributions

Apart from mandated tax and social security deductions, pay stubs also show any additional voluntary contributions that the employee has opted into. These typically include contributions towards employer-sponsored plans and/or insurances offered as part of an employment benefits package. Common examples of such contributions include:

• Retirement plans such as 401(k) or 403(b)
• Health insurance premiums
• Life insurance
• Disability insurance
• Any other taxable benefits (for example, gym memberships, welfare programs)

These schemes are typically employee-paid, though employers may choose to also contribute in some capacity, which may be shown in a separate section of the pay stub.

For more details on employer benefits packages, consult our detailed guide on statutory and voluntary benefits.

Wage garnishments

Wage garnishments are deductions that the employer has been court-ordered to withhold from the employee's paycheck and send to the relevant agency or creditor. Common reasons for wage garnishments include the following:

• Child support or alimony
• Unpaid taxes
• Unpaid student loans (for an extended period of time)
• Other court-ordered debts such as medical bills, credit card debt, outstanding rent or lease payments

Wage garnishments appear in the deductions section of a pay stub and are clearly labeled. Employers are required by law to withhold these sums and ensure they are remitted to the legally named recipients.

What are employer contributions?

Some pay stubs contain a section with employer contributions. These don't affect the employee's gross or net pay but can be added for transparency and informational purposes. They are additional compulsory or voluntary benefits the employer provides to the employee as part of the employment package.

Typical employer contributions that might be listed in this section include:

• Mandatory contributions: FICA taxes, unemployment insurance, workers' compensation
• Voluntary contributions: Employer match to a 401(k) retirement plan, insurance premiums, etc.

If both the employer and the employee are making contributions to a certain benefit (such as a 401(k) plan), that item might appear twice: in the employee deductions, and the employer contributions section.

What is year-to-date (YTD)?

Most pay stubs contain YTD figures, though these are not required by law. This is information about the total amount of funds earned, paid out, deducted, or withheld from an employee's paycheck up to that point in the year. The following types of YTD entries are typically displayed:

• Gross earnings YTD: Total amount of income the employee has earned up to this point in the year
• Net YTD: Take-home income paid out to the employee this year
• Tax withholdings YTD: All taxes withheld by the employer so far in the year
• Deductions YTD: The total voluntary and compulsory deductions retained from the employee's paycheck

Eliminate pay stub errors and stress with Deel US Payroll

A comprehensive and accurate pay stub helps reduce confusion and unnecessary admin and promotes transparency between the employer and employees. This is why it's essential that each pay stub is handled accurately and efficiently.

HR and financial teams play a crucial role in managing payroll. They need to ensure compliance, maintain records for audits, and handle employee questions. This can be especially challenging for distributed and remote teams since state and local regulations can vastly differ from one to another.

Deel US Payroll was specifically created to eliminate this problem. Streamline your payroll and record-keeping processes with our all-in-one solution for managing payments, admin, and compliance across all 50 states.

Book a demo now.