How pay stub deductions work
When you look at a pay stub, you'll see your gross pay (total earnings before anything is taken out) at the top and your net pay (take-home amount) at the bottom. Everything in between is deductions — mandatory taxes, insurance premiums, retirement contributions, and other withholdings that reduce your gross pay to your net pay.
Deductions fall into two broad categories: mandatory deductions (required by law) and voluntary deductions (benefits you've opted into). Understanding both is important whether you're an employee reading your pay stub or an employer creating them.
Mandatory deductions (taxes)
These deductions are required by federal and state law. Every employee has them, and employers must withhold and remit them to the appropriate tax authorities.
Federal income tax
The largest tax deduction for most employees. The amount withheld depends on your filing status (single, married, head of household), income level, and the information you provided on your W-4 form. Federal tax rates are progressive — you pay a higher percentage on higher portions of your income. The 2026 federal tax brackets range from 10% to 37%.
On your pay stub, this typically appears as "Federal Tax," "FIT," or "Fed Withholding." If your withholding seems too high or too low, update your W-4 with your employer.
State income tax
Most states impose their own income tax on top of federal tax. Rates vary dramatically — from 0% in states like Texas, Florida, and Washington (no state income tax) to over 13% in California for high earners. Some states have a flat rate; others use progressive brackets like the federal system.
On your pay stub, this appears as "State Tax," "SIT," or the state abbreviation followed by "Withholding." If you work in a state without income tax, this line won't appear on your pay stub.
Social Security tax (OASDI)
Social Security tax funds the federal retirement and disability benefits program. Employees pay 6.2% of their gross wages, and employers match with another 6.2% (which doesn't appear on your pay stub). This tax applies to earnings up to the annual wage base limit ($176,100 in 2026). Once your YTD earnings exceed this limit, Social Security tax stops being withheld for the rest of the year.
On your pay stub, this appears as "Social Security," "OASDI," "SS Tax," or "FICA-SS."
Medicare tax
Medicare tax funds the federal healthcare program for people 65 and older. Employees pay 1.45% of all gross wages — there's no wage base limit like Social Security. High earners pay an additional 0.9% Medicare surtax on wages exceeding $200,000 (single) or $250,000 (married filing jointly).
On your pay stub, this appears as "Medicare," "Med Tax," or "FICA-Med." Combined with Social Security, the total FICA tax is 7.65% of your wages (up to the Social Security wage base).
Local and city taxes
Some cities and municipalities impose their own income or payroll taxes. New York City, Philadelphia, and many Ohio cities are common examples. These are typically small (0.5% to 3.8%) but add up over the year. On your pay stub, these appear as the city name followed by "Tax" or "Local Tax."
Voluntary deductions (benefits)
These deductions are for benefits you've elected during open enrollment or when you were hired. They're optional, but once you've enrolled, they're deducted automatically each pay period.
Health insurance
If your employer offers health insurance, your share of the monthly premium is deducted from each paycheck. The amount depends on your plan (HMO, PPO, HDHP), coverage level (individual, employee + spouse, family), and how much your employer subsidizes. Health insurance premiums are typically a pre-tax deduction — they're taken out before taxes are calculated, reducing your taxable income.
On your pay stub, this appears as "Medical," "Health Ins," or the insurance carrier name. You may see separate lines for medical, dental, and vision.
Dental and vision insurance
Separate from medical insurance, dental and vision premiums are usually smaller deductions — often $10-$50 per pay period. Like health insurance, these are typically pre-tax. They appear as "Dental," "Vision," or "Dental/Vision" on your pay stub.
401(k) and retirement contributions
If you contribute to a company-sponsored retirement plan, your contribution is deducted each pay period. Traditional 401(k) contributions are pre-tax — they reduce your taxable income now, and you pay taxes when you withdraw the money in retirement. Roth 401(k) contributions are post-tax — you pay taxes now, and withdrawals in retirement are tax-free.
On your pay stub, this appears as "401K," "Retirement," "403B" (for nonprofits), or "TSP" (for government employees). You may see both "401K Pre-Tax" and "401K Roth" if you contribute to both types.
HSA and FSA contributions
Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) allow you to set aside pre-tax money for medical expenses. HSA contributions are available if you have a high-deductible health plan. FSA contributions are use-it-or-lose-it — you must spend the money within the plan year. Both are pre-tax deductions that reduce your taxable income.
Life insurance
If you've enrolled in supplemental life insurance through your employer (beyond the basic coverage many employers provide for free), the premium is deducted from your paycheck. Employer-paid life insurance coverage up to $50,000 is tax-free; premiums for coverage above $50,000 are considered taxable income.
Other common deductions
- Union dues — if you're in a union, monthly dues are deducted from your paycheck.
- Wage garnishments — court-ordered deductions for child support, alimony, tax levies, or debt judgments. These are mandatory once ordered by a court.
- Disability insurance — short-term or long-term disability insurance premiums.
- Commuter benefits — pre-tax deductions for transit passes or parking.
- Charitable contributions — payroll deductions for workplace giving campaigns.
Pre-tax vs post-tax deductions
This distinction matters because it affects how much you actually pay in taxes:
- Pre-tax deductions are subtracted from your gross pay before taxes are calculated. They lower your taxable income, which means you pay less in income tax. Common pre-tax deductions: traditional 401(k), health insurance, dental/vision, HSA, FSA, and commuter benefits.
- Post-tax deductions are subtracted after taxes are calculated. They don't reduce your tax bill. Common post-tax deductions: Roth 401(k), supplemental life insurance (above $50,000), disability insurance, union dues, wage garnishments, and charitable contributions.
For employers creating pay stubs, it's essential to apply deductions in the correct order. Pre-tax deductions must be subtracted from gross pay before calculating tax withholdings. Getting this wrong means incorrect tax withholdings and potential compliance issues.
Reading your pay stub: a quick reference
Here's how to read the numbers on a typical pay stub from top to bottom:
- Gross Pay — your total earnings before anything is taken out.
- Pre-tax deductions — 401(k), health insurance, HSA/FSA.
- Taxable wages — gross pay minus pre-tax deductions. This is the amount your taxes are calculated on.
- Tax withholdings — federal income tax, state income tax, Social Security, Medicare, local taxes.
- Post-tax deductions — Roth 401(k), supplemental insurance, garnishments.
- Net Pay — what's left after all deductions. This is your take-home pay.
If the numbers don't add up (gross pay - all deductions should equal net pay), contact your payroll department to review the calculation.