How to read a pay stub and understand take-home pay

Let’s say you just received your first paycheck — congrats! — and the amount you received (your net income) seems different or less than you expected. You might find yourself wondering why so much money gets taken out of your paycheck and where it goes. We’re here to help — this guide will help you understand how to read a pay stub, where your money is going, and how to manage your paycheck like a pro.

How to read a pay stub

Your pay stub will itemize dollar-for-dollar your earnings and deductions. You’ll likely see your hours worked and hourly rate toward the top. Here’s what else to look for:

• Gross pay: This amount reflects your total earnings before any deductions, typically your hourly rate times the hours you worked if you’re paid hourly. If you’re a salaried worker, you’ll see your rate per paycheck reflected in this section.
• Net pay: This amount is what you take home after deductions, commonly referred to as take-home pay.
• Pay period: The dates this paycheck covers.
• Deductions: Taxes, insurance coverage, and other withholdings are listed in the deductions column. 

What are common paycheck deductions?

Let’s take a more in-depth look at deductions. Deductions are amounts taken out of your gross pay, and they ultimately dictate your net pay. Common deductions include:

• Federal income tax: If you hold a job in the U.S., or if you’re a U.S. citizen working in another country, you must pay federal income tax and employment taxes. This is the amount of money you must pay to the federal government, and it is collected by the IRS. Your tax rate is based on your income and the information you provided on your Form W-4.
• State income tax: Depending on the state in which you live and work, you might be responsible for paying a state income tax. There are 41 states that collect state income tax. Depending on where you live, you may also owe income tax to the county, city. or school district.
• Social Security: Your Social Security wages earned in your lifetime are recorded by the Social Security Administration and are recorded in your own individual Social Security account. The wages will be used to determine your benefits when you retire, or if you become disabled. For 2025, the employee share of the Social Security tax rate is 6.2% of your earnings up to a wage base limit of $176,100.
• Medicare: Your Medicare taxes will provide you with basic health insurance once you reach age 65, or earlier if you become disabled. For 2025, the employee share of the Medicare tax rate is 1.45% of all wages. An additional 0.9% employee share is applied to any wages earned in excess of $200,000.
• Other deductions: Depending on your job’s benefits, you may have deductions taken out for health insurance, 401(k) and/or Roth plans, United Way, garnishments, etc. These other deductions underscore the importance of choosing your coverages and other benefits very carefully during periods of open enrollment (when you sign up for company benefits). Most benefits come at a discounted cost for employees. Your check stub also shows whether the deduction is pre-tax or not, meaning that this deduction will reduce the gross pay on which you pay taxes.

How to calculate take-home pay

To estimate your take-home pay:

1. Start with your gross pay (hourly wage × hours worked).
2. Subtract taxes and deductions.
3. The result is your net pay, or what you’ll receive on payday.

Tip: To get the most accurate estimate of your take-home pay, you can use an online paycheck calculator.

How to adjust your deductions

You can influence how much money is withheld from your paycheck, but we encourage you to think about any changes carefully. Here are some adjustments to consider:

• Change your Form W-4: You can adjust your federal and state tax withholdings at any point throughout the year. Keep in mind that these adjustments could affect how much you may have to pay when filing your annual taxes. Please consider speaking with a financial or tax advisor if you are not sure what to claim on your Form W-4.
• Choose benefits wisely: Health insurance and retirement contributions affect your deductions.
• Pre-tax vs. post-tax: Some deductions reduce your taxable income.

Understanding your pay stub is a key part of managing your money. Don’t hesitate to ask your employer or HR department if something looks off. The more you know now, the better prepared you’ll be for financial success!