Understanding your pay stub

FICA: the Federal Insurance Contributions Act. On your pay stub, FICA refers to Social Security tax.

Medicare: the federal government's health insurance program designed primarily to cover people age 65 or older and people under 65 with certain disabilities.

OASDI: the Old Age, Survivors and Disability Insurance program. This is the official name for Social Security.

Payroll withholdings and deductions: the amounts taken out of your paycheck for items such as taxes and benefits provided by your employer.

Withholding allowance: a deduction claimed on your W-4 form that reduces the amount of your earnings subject to federal income tax withholding.

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Most paychecks, including those deposited electronically into your checking or savings account, come with a pay stub. It's a detailed record of your total earnings (for the pay period that just ended and the year to date), payroll withholdings and deductions from those earnings, and what those withholdings and deductions were for. Understanding your pay stub and knowing where your money is going are essential to effective money management.

What follows is an overview of the types of information that commonly appear on a pay stub. Keep in mind that pay stubs will vary from employer to employer. If you have specific questions about information appearing on your own pay stub, please contact your payroll department.

Common pay stub items

Your pay
Your gross pay is your taxable earnings before any payroll withholdings or deductions like those described below are taken out. Your pay stub will also show your net pay—what's left after all payroll withholdings and deductions are removed.

Federal, state and local income taxes
The amount of any federal income tax withheld from your earnings is shown on your pay stub along with any state or local income taxes withheld.

Checking your federal income tax withholding
It’s important to check your federal income tax withholding at least once a year and adjust it as necessary. Sometimes changes in your personal and professional circumstances can cause the rate at which tax is being withheld from your earnings to become outdated.

You can adjust your withholding by completing and submitting a new federal W-4 form, a document that indicates your current tax situation (including whether you're married or have children and your projected itemized deductions for the current tax year, among other items). The information you provide on this form helps your employer determine the correct amount of tax to withhold from your paycheck. Ideally, you want your employer to withhold tax at whatever rate will cause your total payments to line up fairly closely with your total tax liability at the end of the tax year.

Deciding how many allowances to claim
You're entitled to a certain number of withholding allowances, based on your projected itemized deductions, number of dependents, certain credits, and adjustments to income for the current tax year, as well as whether you have a working spouse or more than one job. The W-4 form includes a worksheet to help you determine how many allowances you're entitled to. You're permitted to claim fewer allowances than you're entitled to, but this may result in overwithholding.

Life events that may affect your withholding
If any of the following circumstances apply to you, you should review your withholding without delay:

  • You have substantial nonwage income (such as interest, dividends or alimony) or the amount of your nonwage income has changed significantly since you last submitted a W-4 form
  • Your filing status is married, filing jointly and your spouse either started or stopped working since you last submitted a W-4 form
  • You or your spouse are working more than one job
  • You’ve had a major life change (such as marriage, divorce, job change or promotion, birth or adoption of a child or the purchase of a new home) that might affect your eligibility for certain tax deductions or credits
  • You expect to owe other taxes, such as self-employment tax or household employment tax, on your federal income tax return
  • There have been tax law changes that may affect the amount of tax you will owe

Getting a new W-4 form
Your human resources department can provide you with a new W-4 form. You can also download one at www.irs.gov/pub/irs-pdf/fw4.pdf (PDF) and print it out.

Social Security and Medicare taxes
FICA and OASDI both refer to Social Security tax. Your employer normally withholds Social Security tax at the rate of 6.2% of your earnings up to an annual earnings limit. This is your own contribution toward the cost of Social Security, and your employer matches your contribution out of its own funds. Please note that for 2011 only, your own Social Security tax rate is reduced to 4.2% of your earnings up to the annual earnings limit ($106,800 in 2011). For 2011, the rate your employer pays remains at the standard 6.2% up to that annual earnings limit.

An entry for Medicare on your pay stub refers to Medicare tax. Medicare is health insurance for people age 65 or older, or under age 65 with certain disabilities. You and your employer are each subject to Medicare tax at the rate of 1.45% of all your earnings.

Employee benefit plans
You will typically see payroll deductions for medical, dental, or life insurance and any other benefits or forms of protective coverage you've enrolled in at work. Your pay stub also shows whether your premiums for such coverage were deducted before or after taxes were taken out of your earnings. Pretax deductions reduce your taxable earnings. The reduction in your taxable earnings, in turn, reduces the amount of tax you pay.

Your pay stub will also show any contributions you made to your 403(b), 401(k), 457 or other retirement savings plan at work, as well as to any flexible spending accounts you're using to pay for health or dependent care expenses.

Union dues
If you belong to a union, any union dues taken out of your earnings are reflected on your pay stub.

The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. TIAA-CREF or its affiliates do not provide tax advice. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons.

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., distribute securities products.

© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017