Anatomy of a Pay Stub: The Deductions You Chose, the Ones You Didn't, and the Pay You Never See
I'm Andy Temte and welcome to Money Lessons! Join me every Saturday morning for bite-sized lessons that are designed to improve financial literacy around the world. Today is September 12, 2026.
Last Saturday was about choice architecture — the arrangement of the options in front of you at the moment you make a financial decision — and about sludge, which is friction built into a process and aimed at the person who has to complete that process. And I promised you a pay stub, with the time spent on the lines most people skip past rather than on a tour of the obvious ones.
The Shape of the Stub
Nearly every pay stub has the same shape. Gross pay sits at the top — the full amount you earned for the pay period, before anything comes out. Net pay sits at the bottom — the amount that reaches your bank account. In between is a list of deductions, and each deduction is money that came out of your gross pay before it reached you. Most stubs show two columns of numbers next to every line: this pay period, and the year so far.
The deductions on a pay stub come in two types. The first type is required by law. The second type is a benefit you elected. Today's lesson is learning to tell the two apart on your own stub, and — the part that matters most — understanding which deductions come out of your pay before your taxes are figured, which come out after, and why that difference matters.
The Deductions the Law Requires
The deductions the law requires are taxes.
The top line is federal income tax withholding. Withholding means your employer holds back part of your pay and sends it to the IRS on your behalf, as a prepayment. Income tax is a bill that's settled once a year, when you file a return. Every paycheck, the payroll system estimates your share of that yearly bill and sends the estimate in ahead of time. The size of the estimate comes from a form you filled out on your first day — the W-4. What I want you to focus on today is one word: prepayment.
Most states levy an income tax of their own. Some don't. If your state does, the stub has a second withholding line for it, and the same word applies — a prepayment.
The next two lines are Social Security tax and Medicare tax. Your stub might label them FICA, which is short for the federal law that imposes them, or OASDI, which is the formal name for Social Security — old-age, survivors, and disability insurance. The Social Security tax is 6.2 percent of your pay, up to a yearly wage limit that most people never reach. The Medicare tax is 1.45 percent of your pay, with no limit at all.
Here is the line I most want to clear up. Social Security is not a savings account with your name on it. Ida May Fuller, a legal secretary in Vermont, was the first person to collect a monthly Social Security check. She had paid Social Security taxes for a little under three years — $24.75 in all. Her first check, dated January 31, 1940, was for $22.54, nearly every dollar she'd paid in. She lived to 100 and collected $22,888.92. Nobody had saved that money in her name. There was no account to save it in.
The 6.2 percent taken out of your check this month is paid out this month, to people who are retired right now. That's how the program is built: the taxes collected from today's workers go out as benefits to today's retirees. The line on your stub is a tax. It is not a deposit.
The Deductions You Elected
The second type of deduction is a benefit you signed up for — most likely in the paperwork on your first day at a new job, the same paperwork I asked you to think about two weeks ago. Some of those elections you made on purpose. Others were made for you by the default settings on your onboarding paperwork, which is choice architecture at work on your own paycheck.
Four elective deductions are the common ones, and I'll take them one at a time.
The first elective deduction is a retirement plan contribution. When a private employer offers a retirement plan, it's usually a 401(k), named for the section of the tax code that created it. This line represents the share of your pay that moves into your plan account each pay period.
The second elective deduction is your share of the health insurance premium. When your employer provides the coverage, you and your employer split the premium, and this line represents your share of it.
The third and fourth elective deductions are two accounts for medical bills not covered by insurance, and they are easy to confuse. A health savings account, or HSA, and a flexible spending account, or FSA, both take money out of your pay before taxes and hold it for those bills. There are two because they go with two different kinds of health plan. An HSA is only available if your health plan has a high deductible — the amount you pay out of your own pocket each year before the insurance starts paying — and in exchange, the money in the HSA is yours to keep, year after year, even if you change jobs. An FSA is available with most other employer health plans, but the account belongs to the plan rather than to you: most of what you put in has to be spent by the end of the year, and what's left behind is forfeited if you leave. Each of these lines represents the amount you chose to set aside, and on many stubs both lines are blank.
Why the Order of Deductions Matters
Every elective deduction I just named is a pre-tax deduction, and pre-tax means exactly what it says: the money comes out of your gross pay first, and your taxes are figured on what's left. A smaller amount gets taxed, so the tax is smaller. That is the advantage of paying for a benefit through your paycheck instead of out of your bank account afterward.
One caveat, so that an expert listening doesn't write to me: most retirement plans come in two versions, traditional and Roth. A traditional contribution is the pre-tax kind I just described. A Roth contribution is the reverse: it comes out of your pay after income tax has been figured, and in exchange, with a few conditions, the money isn't taxed when you take it out in retirement. Traditional versus Roth — for 401(k)s and IRAs both — is a big enough decision that it gets its own episode later in this series, when we reach retirement accounts.
The federal taxes on your stub don't all treat your elective deductions the same way. Your health premium, HSA, and FSA money come out before all three federal taxes are figured — income tax, Social Security, and Medicare. Your traditional retirement contribution comes out before income tax is figured, but not before Social Security and Medicare. Those two taxes are figured as if the retirement contribution were still in your pay.
Subtract every deduction from gross pay, required and elective, and what's left is the net pay at the bottom.
The Pay That Isn't on Your Stub
Here is the last thing to know about your pay stub: it understates what your job pays you. The gross pay at the top is your salary or your wages, and that is not everything your employer spends on you. Two of the biggest pieces never appear on the stub at all, because they never pass through your gross pay.
The first piece is the employer's share of your health insurance premium. You saw your share of the premium as an elective deduction. Your employer pays the rest of the premium directly to the insurance company, and the employer's share is usually the larger of the two.
The second piece is the retirement plan match. At many employers, when you put money into the retirement plan, the employer adds money of its own to your account, up to a limit the plan sets. That money is part of your pay too. It arrives in your retirement account instead of your checking account, and it only arrives if you contribute first.
Add the gross pay on your stub to the premium your employer covers and the match your employer makes, and you have what your job pays. That is why two jobs with the same salary can pay very different amounts. The total has a name — total compensation — and it gets its own episode in two weeks.
What This Means for You
Your pay stub has deductions the law requires — income tax withholding, Social Security, and Medicare — and deductions you elected: your retirement contribution, your share of the health premium, and any HSA or FSA money. The taxes are set by law, and the only ones you can adjust are the income tax withholding lines. The elected deductions can be changed, but not whenever you like. Most employers open the benefit elections once a year, during a period called open enrollment. Outside that window, the health premium and FSA lines are generally locked until the next open enrollment, with exceptions for events like a marriage or a new child. Retirement contribution rates and HSA contributions can usually be changed more often, depending on your plan.
Next Saturday, the most misunderstood of the required deductions — income tax, taught as a system: how the withholding amount gets set, what a tax bracket is and isn't, why a refund is your own money coming back, and the W-4, the form that lets you change how much is withheld.
Until next week... Grace. Dignity. Compassion.
