Basic Parts of a Pay Stub

Unlike Form W-2, which has a specific set of instructions keyed to all possible entries in all boxes provided, a pay stub may vary in presentation from one employer to the next. It may even vary from one payroll service provider to the next. Accordingly, a pay stub should contain all items reportable on a Form W-2, such as gross wages, tips, bonuses, commissions, overtime, certain reportable fringe benefits such as excess group-term life insurance coverage, and other sources of compensation. In addition, it should report all related withholdings, such as federal and state income tax, FICA, city or other local tax, and fringe benefits such as dependent care benefits, retirement plan contributions (and in some cases employer matching), cafeteria plan deductions, and certain other benefits. Note, too, that wages garnished for a judgment issued by a court of competent jurisdiction appear on a pay stub as such, as do voluntary payments to taxing authorities for delinquent tax liabilities, ordinarily shown separately from current withholdings. In addition, FUTA and state unemployment taxes are paid at the employer level and not reportable on a paystub or otherwise by employees.

Recent legislation enacted by Congress has generated new items reported on a typical pay stub, such as the cost of employer-sponsored health coverage, code DD in box 12 on Form W-2. Although not taxable, this item is reportable.

Items such as vacation pay, sick time, and certain other forms of compensation are typically reportable as such on a pay stub, reflecting the employee's hourly pay rate and the number of hours of, for example, vacation pay. Typically, withholdings for such items are included in those for regular pay, although an employer may show separate line items.

Reasons for Employees to Keep Pay Stubs

There are many good reasons for maintaining good wage records, including keeping your pay stubs. Among them:

  • It enables you to track all items to ensure accuracy, such as federal and state income tax withholding, as well as retirement plan contributions withheld (and employer matching, if reported on pay stubs), life insurance coverage, voluntary payments to taxing authorities, and so forth.

  • If you have a balance due on either your federal or state income tax return, pay stubs are necessary for setting up an installment agreement with either the IRS or a state taxing authority, as they provide proof of income and related withholdings.

  • If you receive certain types of notices (but not all notices) from the IRS, such as a 2801C Letter challenging the number of withholding allowances you are claiming, you will need your most recent pay stubs for all jobs you hold to be able to respond to it.

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  • If you have charitable donations automatically deducted from your pay, you may need the paystub as proof. As of 2006, a donor must keep a bank record or a written communication from the doner as a record of the contribution. Written records prepared by the donor, such as check registers, are no longer accepted as proof of charitable contributions. Individuals who make contributions through payroll deduction can satisfy the recordkeeping requirement with (1) a pay stub, W-2, or other document furnished by the employer that specifies the amount withheld for payment to charity, and (2) a pledge card or other document prepared by the charity and showing its name. An individual claiming a deduction of $250 or more is also required to obtain and keep a contemporaneous written acknowledgment of the charitable contribution.

  • If you are a nonresident alien whose employer mistakenly withheld FICA from your wages and you file a Form 843, "Claim for Refund and Request for Abatement," with the Internal Revenue Service in order to request a refund, you may need the pay stubs as proof of such withholding.

  • Ultimately, the employee is responsible for paying his own taxes even if the employer fails to take withholding. (If the employee suspects the employer is not depositing withholding, the employee can report the employer to the IRS.) If the employee is unable to obtain a W-2 from the employer, the employee should complete and attach Form 4852, "Substitute for W-2," to their tax return using the best information available to calculate the wages and the withholding. This information can often be obtained from pay stub


We all work for largely similar reasons. The work that we do is tolerable enough for us to keep doing it over a medium- to long-term period. Possibly it is even enjoyable, but judging from anecdotal accounts, this is rare and getting rarer. The remuneration is enough to pay the bills, feed us and ours, and leave enough excess to provide a few luxuries. Just about everyone you ask will give one of these two reasons for his or her choice of employment, and often the other one will be a secondary reason. Being paid and having job satisfaction are almost indispensable.

Many of us will, however, look at the amount of money we are paid and wonder how things might be if the amount of tax we paid was a little bit smaller. There is some resentment about the level of tax that one pays in today's society, especially if one does not agree with how those tax dollars are spent by the authorities taking them. But there is no way around it, you simply have to pay taxes if you are earning a wage. Although there are some exemptions and creative ways of accounting that can help you avoid taxes the authorities simply want you to pay, avoiding tax that you are legally bound to pay is a criminal offense.

Some nations in the world have a flat tax rate. The United States is not one of these, favoring a progressive taxation system, as do most of the Western nations in the world. The simplest explanation of a progressive taxation system is that the rate of income tax paid by a working individual will increase as the amount of money earned increases. Effectively, the philosophy behind this is that those earning more can afford to pay more; but generally, the higher rate of taxation will not prevent the higher earner from still having more money. There are a range of factors that govern how much tax each individual will pay and, as a payroll professional, one of your responsibilities will be calculating how much tax an employee is due to pay on her or his earnings.

Federal income tax is one of the contributions that an employee will almost certainly have to pay, and a U.S. citizen is subject to federal income tax wherever he or she earns money (although provisions exist to prevent double taxation). Income tax is subject to some deductions on the amount, depending on the employee's living status, age, and other factors.

When it comes to federal income tax calculation, the approach involves a complicated process wherein the first important number is the amount of money employees have earned based on their hourly rate times hours worked: the gross wage. From this, the next important number is the rate at which tax is paid. This is divided by the gross wage to find the amount of tax. Then we take into account any credits or tax deductions that lessen the overall amount of tax the worker has to pay. A final amount will then appear on the employee's pay stub.

Calculating the amount a person will pay in federal income tax is subject to so many differing factors that it is one of the most challenging aspects of a payroll professional's job. This is particularly the case as every employee within a company can have a different tax status, different exemptions, and different entitlement to credits. After the federal income tax is calculated, the other taxes imposed on an employee are generally a bit more straightforward. Federal Insurance Contributions Act (FICA) deductions, for example, are charged at a flat rate, and any deductions for tax above and beyond the federal taxes depend upon where the wage earner works and lives.

There is also a certain amount of one's wage that may be untaxed. This may be set as an upper level after which point the salary is not subject to income tax. So employees pay tax on, for example, the first $40,000 of their earnings and no further; or there is a lower level beneath which all earnings are not subject to tax and tax is paid only on any amount earned over that.

The worker in one state, town, or any of a number of other variations may well find that he or she has the privilege of paying tax to two or three authorities more than their neighbor a few miles away. Determining these tax deductions is just one of the joyous, exciting elements of being a payroll worker.

If after some time it is found that a worker mistakenly has been put on the wrong tax code, thus paying more than required, this will result in a tax refund at some point, so it is important to ensure that all of the correct details are collected and applied to the employee. Trying to get back a tax overpayment can be a long and overly complicated experience, so it is to your benefit and the employee's to make sure things are done correctly the first time. Again, the details of who pays what and who gets which exemptions will be made clear before you start to calculate things, but you may come to feel that this explanation of the matter is just to make room for other complications when you start to calculate the more specific details.