How to Read a Paycheck Stub: Taxes, Codes, and Your Take-Home Pay Explained

TL; DR: Feel like your first paycheck is missing money? In this guide to your paycheck stub explained, we unpack every part of your pay stub, including federal and FICA taxes, pre-tax benefits, employer contributions, and other mysterious codes, so you’ll know exactly why your take-home pay is less than your gross (and how to check your withholding).

Have you ever looked at your paycheck and wondered, “Where did all my money go?”

For many people, that first paycheck can come as a shock. Your gross salary is one number, but your take-home pay is another story entirely.

Your paycheck stub holds all the answers, but it can be confusing to read.

If you’re ready to crack the code, this is the guide for you. We’ll walk you through everything your paycheck stub can tell you about your total earnings and everything that gets taken out before the money reaches you. By the end, you’ll be a pro at understanding your paycheck stub.

Why Your First Paycheck Looks Different Than You Expect

The number you see in your job offer letter and the number that ultimately lands in your bank account are two very different things. 

The first is your gross pay, which is the total amount you’ve earned. The second is your net pay, or take-home pay, which is what’s left after taxes and other deductions. There are a few factors that contribute to this difference.

First, your payroll cycle matters. If you’re paid weekly, you’ll receive 52 smaller paychecks. If you’re paid biweekly (every two weeks), you’ll get 26 paychecks. If you’re paid semimonthly (twice a month, usually on the 15th and on the last day), you’ll get 24. Each paycheck represents just a slice of your annual salary, so the gross amount per check will vary depending on your company’s pay schedule (and whether you’re hourly or salary).

Next, your Form W-4 elections will also play a role here. Remember, this is the form you fill out when you start a new job, and it tells your employer how much federal income tax to withhold from each paycheck based on your filing status, number of dependents, and other adjustments. The choices you make here directly impact the size of your take-home pay.

Finally, your gross pay isn't the same as your taxable wages. Some deductions, like contributions to a 401(k) or health insurance premiums, are taken out before taxes are calculated. This lowers your taxable income, which overall is a good thing, but can be confusing when you’re reading that paycheck.

Understanding Gross Pay, Taxable Pay, and Net Pay

Let’s break down the three most important "pay" terms you’ll see on your stub so you can better understand your earnings:

• Gross Pay: This is the top-line number, the total amount of money you earned during a pay period before anything is taken out. For hourly employees, it’s your hourly rate multiplied by the hours you worked. For salaried employees, it’s your annual salary divided by the number of pay periods in the year.
• Taxable Wages: This is the portion of your gross pay that is subject to taxes. It's calculated after pre-tax deductions are subtracted. Things like contributions to a traditional 401(k), health savings account (HSA), or health insurance premiums are often pre-tax. They reduce your taxable income, which means you pay less in taxes.
• Net Pay: This is your take-home pay. It’s the final amount of money you receive after all taxes and deductions (both pre-tax and after-tax) have been subtracted from your gross pay. This is the number that ultimately shows up in your bank account.

Federal Withholding Explained (The Biggest Reduction)

For most people, federal income tax withholding is the largest chunk taken out of their paycheck. This isn’t a penalty; it’s you pre-paying your income taxes for the year. 

The federal government operates on a pay-as-you-go system, which means you pay your taxes throughout the year instead of all at once in April. Your employer withholds this money and sends it to the IRS on your behalf.

The amount withheld is calculated based on the information you provided on your Form W-4. Your employer’s payroll system uses your filing status, dependents, and any other income or deductions you reported to estimate your annual tax liability and divides it across your paychecks.

Sometimes, withholding can seem a bit strange, especially if you start a job mid-year. Payroll systems often use a process called "annualization," where they take your pay for one period and project it out for the full year to calculate withholding. 

If you get a large bonus, the system might withhold at a higher rate because it annualizes that single payment, temporarily making it seem like you’re earning that much every pay period. Similarly, your first paycheck might have slightly off withholding if it covers an unusual period, but the good news is that this usually smooths out over time.

Social Security and Medicare (FICA Taxes)

Next up on your stub are FICA taxes. FICA stands for the Federal Insurance Contributions Act, and it’s a U.S. federal payroll tax that funds two major programs: Social Security and Medicare. These are mandatory deductions for all W-2 employees.

Here’s how FICA breaks down:

• Social Security: You pay 6.2% on your earnings up to an annual limit. For 2025, this limit is $176,100. This means you stop paying Social Security tax once your income for the year exceeds this amount. The program provides retirement, disability, and survivor benefits.
• Medicare: You pay 1.45% on all of your earnings, with no income limit. This funds the hospital insurance program for people 65 and older and for those with certain disabilities.

Your employer matches your contribution, paying an additional 6.2% for Social Security and 1.45% for Medicare. So, the total contribution to FICA is 15.3% of your eligible earnings, with you and your employer splitting the cost.

High earners should also be aware of the Additional Medicare Tax. If your income exceeds $200,000 (for single filers), you’ll pay an extra 0.9% in Medicare tax on the income above that threshold.

It’s important to note that FICA taxes apply to W-2 employees. If you're an independent contractor, you're responsible for the full 15.3% yourself, which is known as self-employment tax.

State and Local Withholding (If Applicable)

In addition to federal taxes, you’ll likely see deductions for state and local taxes, too. Most states have an income tax, and the amount withheld works similarly to federal withholding. That said, some states, like Texas, Florida, and Washington, have no state income tax, so if you live in one of those states, you won’t see this deduction.

Some cities and counties also levy their own local income taxes. If you work in a place like New York City, Philadelphia, or certain areas in Ohio, you might see another line item for local tax withholding. These funds support municipal services like schools, police, and public works.

On your pay stub, these deductions might be abbreviated, with common codes including:

• SWT or SIT (State Withholding Tax or State Income Tax)
• LIT (Local Income Tax)
• CTY (County Tax)
• CITY (City Tax)
• SDI (State Disability Insurance, in some states like California or New Jersey)

These codes will appear alongside the amounts withheld for each applicable state or local tax.

Some cities and counties also levy their own local income taxes. If you work in a place like New York City, Philadelphia, or certain areas in Ohio, you might see another line item for local tax withholding. These funds support municipal services like schools, police, and public works.

Pre-Tax vs After-Tax Deductions

If you’re still asking yourself, “Why is my paycheck smaller than I expected?” it might boil down to your deductions.

Deductions come in two main flavors: pre-tax and after-tax, and play a role in how benefits impact your take-home pay and your tax bill.

Pre-tax deductions are taken out of your gross pay before any income taxes are calculated. This lowers your taxable income, which can be a great financial strategy.

Some of the pre-tax deductions you might see on your paycheck include:

• Health, dental, and vision insurance premiums
• Contributions to a Health Savings Account (HSA) or Flexible Spending Account (FSA)
• Contributions to a traditional 401(k) or 403(b) retirement plan
• Commuter benefits

After-tax deductions are taken out of your pay after all taxes have been calculated. These deductions don’t lower your taxable income.

The most common after-tax deductions include:

• Contributions to a Roth 401(k) retirement plan
• Disability insurance premiums
• Wage garnishments (for things like child support or unpaid debts)
• Union dues

Here's a simple way to think about it:

Common Paycheck Codes and Abbreviations

Paycheck stubs are famous for their confusing array of codes and paycheck abbreviations. And although the exact terms can vary by the payroll provider, these are some of the most common ones you’ll encounter:

Paycheck Codes Meaning

How to Confirm Your Withholding Is Correct

Your paycheck will serve as your first clue as to whether your tax withholding is on track or needs to be adjusted. If you’re withholding too little, you could face a surprise tax bill and maybe even penalties when you file your return. If you’re withholding too much, you’re giving the government an interest-free loan and reducing your cash flow throughout the year.

You should review your withholding and consider adjusting your W-4 if you experience a major life event, such as:

• Getting married or divorced
• Having a baby or adopting a child
• Your spouse’s employment situation changes
• You start a side hustle or get a second job

The best way to check your withholding is to use the IRS’s Tax Withholding Estimator tool. This online calculator helps you determine if your current withholding is accurate based on your expected income, deductions, and credits. It will even give you specific recommendations on how to fill out a new W-4 if an adjustment is needed.

Understanding Your Pay Stub Deductions and Codes is Key

That small slip of paper, or digital file, is more than just proof of payment. In reality, your paycheck stub is actually a detailed report of your financial life at work.

Check your paystub regularly to make sure your W-4 settings are correct and to better plan for the future. This way, you can avoid any unwelcome surprises come tax season.

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