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How to read a paycheck or pay stub

With the ease of direct deposit, many people never see—or review—an actual paycheck or pay stub. Pay stubs—the part of the paycheck that lists important information like withholdings, wages earned during the pay period and where your money is going—are important to understand. Here are some basic terms and elements to know.

Paycheck Image

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Calculating net pay

1.Gross pay
2.Mandatory deductions
3.Voluntary deductions
4.Net pay

Gross pay

The total amount you’ve earned before any deductions are taken out. This is not the amount you take home however.

Mandatory deductions

Wages that are withheld from your paycheck to meet certain legal obligations like taxes.

  • 10-37% 
    Federal income tax
    (depending on income)
  • 1-10% 
    State income tax
    (not in all states)
  • 6.2% 
    Social Security tax
  • 1.45%
    Medicare tax

Voluntary deductions

These are items you have elected to pay for, such as retirement or insurance benefits.

Health insurance premiums

Retirement account contributions

Flexible Spending Accounts (FSAs)

Commuter benefits

Net pay

Your total gross earnings minus all applicable deductions—this is the amount of money you actually take home.

Other common questions about paychecks:

If I’m self-employed, how does my paycheck differ?

If you are a freelancer or self-employed, it is up to you to set aside a percentage of each paycheck for deductions like taxes, insurance, etc. When you are a full-time employee, your employer automatically takes deductions out of your pay.

What is the difference between the two types of income tax?

Federal taxes are collected by the U.S. government while state income taxes are collected by individual state governments. Both have different rules on deductions and what income can be taxed.

Is a paycheck the same thing as a pay stub?

No. A pay stub (also called a pay slip or salary slip) is a receipt from your employer, but you are not able to deposit it into your bank account.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.

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