How to Read Your Paycheck (Pay Stub): Deductions Explained
A pay stub is a small financial statement. Between gross pay and the deposit, four things leave: pre-tax deductions, federal withholding, FICA, and state/local tax — in that order, and the order matters because each step shrinks the base the next one taxes.
The order money leaves
Start with gross pay. Pre-tax deductions come out first: traditional 401(k) contributions, health premiums and HSA/FSA contributions. These reduce the income the IRS taxes, which is why a 6% 401(k) contribution on a $70,000 salary removes $4,200 from taxable wages, not just from your deposit. Federal withholding is then estimated from the W-4 you filed, using the bracket system. FICA follows: 6.2% Social Security up to the annual wage cap plus 1.45% Medicare, matched by your employer. State and local taxes come last, where they exist.
Two checks are worth doing annually. First, whether your withholding roughly matches your actual tax — a large refund every year is an interest-free loan you can redirect by adjusting your W-4. Second, whether your year-to-date Social Security wages stop at the cap; payroll errors do happen, and excess FICA is only recoverable at filing.
- Roth 401(k) contributions are post-tax: they do not reduce this year's taxable wages.
- Garnishments, union dues and after-tax benefits appear after taxes — read them separately from tax lines.
- Your final stub of the year is the draft of your W-2; discrepancies are easiest to fix in January.
Questions, answered
Why did my take-home change in January?
Common causes: new benefit premiums, a reset of the Social Security wage base, updated tax tables, or a fresh 401(k) election. Compare line by line against the last stub of the old year.
What is the difference between gross and taxable wages?
Taxable wages are gross minus pre-tax deductions. The gap between them is why two people on the same salary can owe different tax.
Reviewed by Tahir Shehzad, ACMA. Figures are reviewed against the sources on our methodology page. This guide is education, not personal financial advice.