To properly read a pay stub, the recipient must understand the difference between gross and net pay and recognize deductions. Knowing how to read pay stubs can help workers understand where their money is going and prevent any issues when it's time to pay income taxes.
Gross pay, also referred to as taxable earnings, is the amount of income earned over a set period of time. Both the time period worked and the hourly wage are included on the pay stub. If the worker earns a salary rather than hourly wages, that amount is included instead. However, there is a difference between a worker's gross pay and what a worker is actually paid, which is called net pay. The amount subtracted from a worker's gross pay is called deductions.
Workers' deductions vary, but all workers pay federal income tax, Medicare and social security tax. Most states deduct income taxes as well. These are called involuntary deductions and are listed first on a pay stub. If a person has a retirement account, health insurance or makes contributions to a charity, these are called voluntary deductions and are also listed on the pay stub.
Most pay stubs show running totals of gross income, net income and each deduction. This allows a worker to track how much he has earned and make adjustments or ask questions a deduction or net pay appears to be incorrect.