What to Look for on Your First Paycheck and Pay Stub

• Whether you are an hourly or salaried employee, your gross pay will differ from your take-home pay.
• You’ll need to account for FICA (Federal Insurance Contributions Act) tax, federal income tax, and potentially state and/or local income tax withholdings.
• Some employees may even see deductions for health insurance premiums or retirement account contributions. 

Learning to read your pay stub is essential, and there’s no better time to start than with your first paycheck. Understanding the numbers on your pay stub can help you determine why there’s a difference between your pay rate and what you take home.

Knowing how to read your paycheck lets you identify potential withholding errors, saving you headaches next tax season. Plus, when you have a realistic expectation of your net pay, you can more confidently use tools like Earned Wage Access to improve your finances.

Gross Pay vs. Net Pay

There is a difference between gross pay and net pay. Your gross pay is what you earn from your employer, while your net pay is the amount that ends up in your pocket on payday. 

You can determine your net pay by subtracting all payroll withholdings from your gross income.

FICA Taxes

These are the taxes you owe for Social Security and Medicare. You pay half of them, and your employer pays the other half. As an employee, you should pay 7.65% of your income towards these every paycheck. 

Talk to HR if you don’t see FICA taxes deducted from your paycheck.

Federal, State, and Local Tax Withholding

When you have a job, you owe money to the federal government. Your income might also be taxed depending on your state and local government.

Consequently, you should see income taxes coming out of each paycheck. These deductions try to get you as close as possible to owing $0 next tax season.

However, W-4s changed in late 2019. Even though the changes offered more customization for employees, filling them out is more challenging. Many employers struggle to complete them accurately, causing some people to owe more during tax season.

To alleviate this problem, sit down with HR to figure out the most advantageous way to fill out your W-4, especially if you notice there’s no federal tax withheld on your first pay stub. It might not be a quick meeting, but ensuring things get done correctly is worth your time.

Health Insurance Premiums

When your employer offers health insurance, your premiums come from your paycheck. Typically, your pay stub will reflect this. 

Your premiums might be deducted from your pay before or after taxes, depending on your plan.

Retirement Account Contributions

If you contribute to a retirement account, your pay stub will reflect this. When your employer offers a retirement plan, it’s likely tax-deferred. This means the money gets deducted from your paycheck before taxes, lowering your tax liability. Examples include 401(k) and 403(b) accounts. 

You may also have an individual retirement account (IRA) linked to your pay stub. This account is independent of your employer, but you might have contributions from your paycheck sent to the account as a payroll deduction. Examples include traditional and Roth IRAs.

Traditional IRAs are tax-deferred, but contributions won’t appear on your pay stub as pre-tax money like an employer-sponsored retirement account. During tax season, your 1040 will handle these contributions.

Contributions to Roth IRAs occur after income tax deductions. The upside is that withdrawals from these accounts won’t incur taxes when you withdraw money in retirement. 

Final Word

Now that you know the most common line items, you can review your pay stub and address anything that’s out of line with HR. Keeping an eye on your first few paychecks can save you headaches later on since you can catch issues early.

Typically, there won’t be any errors. Nevertheless, being familiar with your actual net pay can be helpful if you’re in a bind and need to use Payactiv’s Earned Wage Access tool.

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