How Pay Stubs Work: A Complete Breakdown

How Pay Stubs Work

A pay stub is a detailed record that shows how your gross earnings are transformed into your net (take-home) pay through various deductions and withholdings.

The Pay Stub Calculation Flow

1. Gross Pay Calculation

Your gross pay is calculated based on your compensation type:

• Hourly workers: Hours worked × hourly rate + overtime
• Salaried workers: Annual salary ÷ number of pay periods
• Add: Bonuses, commissions, tips, and other supplemental income

2. Pre-Tax Deductions

These are subtracted from gross pay before taxes are calculated:

• 401(k) retirement contributions
• Health Savings Account (HSA) contributions
• Flexible Spending Account (FSA) contributions
• Traditional IRA contributions
• Health insurance premiums (if pre-tax)

3. Tax Calculations

Taxes are calculated on your taxable income (gross pay minus pre-tax deductions):

• Federal income tax — Based on W-4 filing status and tax brackets
• State income tax — Varies by state (some states have no income tax)
• Social Security — 6.2% up to the wage base ($168,600 in 2026)
• Medicare — 1.45% (additional 0.9% for high earners)
• Local taxes — City or county taxes where applicable

4. Post-Tax Deductions

Subtracted after taxes are calculated:

• Roth 401(k) contributions
• Life insurance premiums
• Union dues
• Wage garnishments
• Charitable contributions

5. Net Pay

Net Pay = Gross Pay - Pre-Tax Deductions - Taxes - Post-Tax Deductions

This is the amount deposited into your bank account or printed on your paycheck.

Understanding YTD Totals

Year-to-date totals accumulate from January 1st through your current pay period. They're essential for:

• Tracking progress toward tax bracket thresholds
• Monitoring retirement contribution limits
• Verifying W-2 accuracy at year-end
• Planning for estimated tax payments