Decoding your pay stub: Common terms and abbreviations

Everybody loves payday — whether you're getting cash, a check, or a direct deposit, it's all money in the bank. According to American Payroll Association (APA) data, 93% of Americans prefer direct deposit (receiving money in a bank account after deducting federal and state taxes). 

But while direct deposit is super convenient, it also means many of us aren’t looking at our paystubs as often (or at all) – and there’s vital information on there. Pay stubs contain essential annual tax and benefit contributions, so understanding them is crucial for your financial planning.

Essential components of a pay stub

Your pay stub shows the money you earned in a pay period and how much went toward deductions like taxes and insurance. Depending on your situation, you may see pay codes and other abbreviations. 

If you receive a W-2 tax form from your employer (employers handle the W-2; employees fill out a W-4 for tax withholdings – more detail in the next section), only a portion of your base pay goes into your bank account — this is the difference between gross and net income. Workers with a 1099 form, like contractors, receive the full gross amount of their pay and are responsible for calculating and paying taxes themselves.

Here's how to read a paycheck stub, with a breakdown of components.

• Employee information: Includes your name, address, Social Security number, employee ID number (if applicable), and pay rate.

• Pay period dates: The pay period is based on how frequently an employer pays employees. It's often biweekly (every two weeks) but varies by employer and employment status. 

• Earnings breakdown: This section details different components of an employee's income for the pay period, including regular base pay, overtime pay, bonuses, commissions, or other applicable earnings. 

• Total gross pay: The earnings breakdown will end with this number – the total amount you earned in a given pay period. Net pay is the amount remaining after all deductions.

• Deductions overview: Deductions are money that comes out of your paycheck like federal income tax, state income tax, Federal Insurance Contributions Act (FICA) withholdings (Social Security and Medicare), insurance premiums, retirement contributions, and any other deductions, donations, or job-related expenses.

• Year-to-Date (YTD): This is the total of your annual earnings and deductions from the beginning of the calendar year up to the current pay period.

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Deductions explained

Deductions are dollar amounts your employer removes from your paycheck before you receive it for things like federal income tax. Many people opt for deductions in their paychecks because it simplifies paying taxes, retirement contributions, insurance, and other expenses. But it also depends on the type of employee you are.

If you receive Form W-2 from your employer at the end of the year, it details tax deductions for income, Social Security, or Medicare. W-2 employees also fill out Form W-4 to calculate any additional withholding amounts based on filing status (single or married), number of withholding allowances claimed, and any additional withholding requested. 

W-2 employees use IRS Form W-4 to calculate their withholding amounts based on filing status (single or married), the number of withholding allowances claimed, and any additional withholding requested, or an exemption from withholding (the exemption is only for those who had no tax liability the prior year and expect none again). 

The key tax deductions you should know include:

• Taxes: Typically, employees pay federal income tax and, depending on your state, state income tax. These depend on your income bracket and location.

• Social Security and Medicare: These are known as FICA or payroll taxes, and you contribute 6.2% to Social Security and 1.45% to Medicare.

Other deductions you may see on a pay stub include:

• Health insurance premiums: If you enroll in an employer-sponsored healthcare plan, you'll often pay for this plan through pre-tax deductions. This means that before taxes are assessed on your gross pay, the cost of your monthly insurance premium is deducted from your paycheck and paid to the insurer.

• Retirement contributions: If you participate in a traditional 401(k) or other pre-tax retirement account, you may elect to contribute a set amount from your gross pay before deducting taxes. This reduces your taxable income on each paycheck. Roth IRA accounts allow for after-tax contributions instead of or in addition to pre-tax contributions.

Common terms and abbreviations

Most pay stubs contain three parts: What you earned for the pay period, your taxes, and any additional deductions you paid. 

• Earning types: Earnings pay codes may include "REG" for regular pay, "OT" for overtime pay, or "VAC" for vacation pay. 

• Tax deductions: Pay codes for tax deductions may include "FED" for federal income tax, "STATE" for state income tax, and "FICA" for Medicare and Social Security. (Sometimes these are broken into "OASDI" or "SS" for Social Security and "MED" for Medicare.)

• Non-tax deductions: Pay codes for other standard deductions include "FSA" for a Flexible Health Spending Account, “HSA” for a Health Savings Account, and "401(k)" for retirement contributions.

You can use this paystub information to confirm your paycheck is accurate and track where your money’s going each pay period.

Make the most of your first paycheck

No matter your employment type, paystubs play a pivotal role in budgeting and financial planning. Because it details your gross earnings and what you’ve paid in taxes and non-tax deductions, it’s critical information to help you plan your overall money management.

FAQs on how to read a paycheck stub

What is on a pay stub?

There are three main parts: 

1. What you earned for a given pay period

2. Any taxes you paid

3. Any additional deductions 

Your gross income is the total amount you earned before deductions. Net pay is what you “take home” after subtracting deductions.

What does YTD mean on a pay stub?

YTD stands for year-to-date. This amount represents your total earnings and deductions for the year up to the current pay period.

What does “FICA” mean on a paycheck?

FICA stands for Federal Insurance Contributions Act, a tax that includes Social Security and Medicare.

What do the codes mean on my pay stub?

Some of the most common include "REG" for regular pay, "OT" for overtime pay, "VAC" for vacation pay, "FED" for federal income tax, and "FICA" for Social Security and Medicare.

What should I do if my pay stub looks incorrect?

If your pay stub looks incorrect, talk to your employer's HR department immediately to fix errors or clear up misunderstandings.

How often should I check my pay stub?

Paystubs are pretty consistent for many people. But it’s still a good idea to ensure it’s correct whenever you get one, especially for variables like overtime, paid time off, and bonus pay.