How to Read Your Paycheck

This post was updated in November, 2018

I don’t know about you but the paycheck has become a sort of an anomaly to me. All I see is the direct deposit that lands in my checking account a couple times a month (followed by a lot of it leaving). I really hadn’t considered what a physical check looks like, what goes into that ‘pending deposit’ number since my days making pizza at Jet’s in high school. 

So let’s walk through basic check anatomy and then some not so basic check anatomy.

This is the backbone, or skeleton, if you will. We’ll go through what each one of these categories mean and how it relates to the check, then dive a little deeper into the muscle of the different categories - getting tired of this analogy yet? 

Your pay stub might not look like this but it'll definitely represent some of the stuff you're probably seeing on yours.

Your pay stub might not look like this but it'll definitely represent some of the stuff you're probably seeing on yours.

Gross Pay 

This is the total amount you’ve earned during the pay period. So let’s look at the diagram, Mark’s Current Gross Pay is $1,488 and his YTD is $25,066. Sounds good, right? Hold on, a lot is going to come out of this number before we get to net pay.


Taxable Wages 

I bet you’re about to ask me, ‘‘Well this is the just the same as gross pay, why differentiate the two?” Gross Pay is unaffected by almost anything the government can do; taxable pay isn’t. There are exemptions and adjustments you can take out of Gross Pay such as; 

  • qualified medical, dental, life and vision insurance;

  • 401(k) - unless they are Roth IRA contributions, those are taxed now

  • flexible spending accounts

  • qualified business reimbursements

    • meals

    • travel

    • lodging

Ok, now we’re at the point where stuff starts coming out of those taxable wages. 


It could say this on your paycheck or it could say Social Security and Medicare on separate lines. Both the employee and employer pay this. Social Security gets 6.2% and Medicare gets 1.45%.

I’m sure you know this already but as a quick reminder, Social Security and Medicare taxes provide relief for retirees, the disabled and survivors of deceased workers. 


This is what you’re paying into to run the government and provide all of those great government services we all use (I see you rolling your eyes). Remember filling out that W-4 form when you started your job? The information (filing status, wage) you disclosed on that form will basically figure out how much income tax withholding is coming out of your check. 


Here’s what is being taken out of your pay to run the state government. I live in Michigan, so my check represents a 4.25% income withholding tax. This is used to fund education, state health care, transportation (roads, bridges, etc.) and a whole lot more. 


Depending on where you live (local taxes are pretty rare), this may or may not apply to you. I live in Grand Rapids, so it definitely applies to me. This tax will go towards paying for city employees, covering pensions and city utilities (street lights, buses, etc.) Understandably, this will be the lowest percentage of all taxes that’ll be taken out of your pay. 

So that covers all of the basic aspects of your average pay stub, let’s dive a little deeper and see what else could be a part of it. 

Everything Else

Say you signed up for a dental plan, like Mark did here. That’ll show up coming out of your gross pay as well as other health related expenses. 

You can also see garnishments here, like the $50 court cost. Garnishments are basically debts (child support, back taxes, student loans) that can be automatically taken out of your paycheck, though there are limits, which are; 

  • garnishment cannot exceed 25% of your disposable income

  • garnishment cannot exceed the amount that your income exceeds 30 times the federal minimum wage

A couple other things that might pop up here. Looks like Mark set it up to automatically donate $15 to the United Way every pay period, that’ll come out of his paycheck. He also set up automatic deposits into his savings accounts, $777.12 and $50 respectively. 

Take all of that out and we’re left with what you are taking to the bank and subsequently spending on Jet's Pizza - net pay.

Don’t worry if this guide doesn’t completely represent your pay information. Every paycheck and pay stub are going to look different. What’s disclosed or not disclosed depends on who generates the paystub (software, CPA, spreadsheet, etc.) I generated all of the information for this post by the example check and stub we give all prospects/clients. Your pay info might/probably will look different!