Understanding your pay stub and your W-2

A pay stub is the slip, on paper or online, that comes with every payment of wages. Getting a proper one starts with an SSN or ITIN. Most people glance at the final number and file it away. But reading it properly is the quickest way to spot an employer underpaying you, and it is the evidence you will need if you ever have to make a claim.

What is on a pay stub#

The two numbers that matter most#

• Gross pay: everything you earned in this pay period, before anything is taken out
• Net pay: what actually reaches you after all deductions, often called take-home pay

The gap between them is your deductions. If that gap looks too wide, read on.

The deductions#

Social Security and Medicare together are 7.65% of your pay. Your employer has to pay the same amount again out of their own money.

The hours section#

Your stub has to show the hours you worked and your rate of pay. This is the part worth checking hardest.

Three signs you are being underpaid#

1. Overtime is not being paid#

Under federal law, an hourly employee who works more than 40 hours in a week must be paid 1.5 times their normal rate for the extra hours. Some states go further: California starts overtime after 8 hours in a single day, without waiting for the 40-hour week.

If you worked 50 hours and the stub shows 50 hours all at one rate, something is wrong.

2. The hours on the stub are fewer than the hours you worked#

Keep your own record of when you clock in and out, on your phone or in a small notebook. If there is ever a dispute, your own contemporaneous notes count as evidence, especially when the employer's records are incomplete.

3. You are called an "independent contractor" but you work as an employee#

If the employer sets your hours, tells you how to do the work, and supplies the tools, then in law you are most likely an employee, whatever you are called. Misclassifying you like this shifts the employer's share of taxes onto you and removes your right to overtime.

At year end, employees receive a W-2. Independent contractors receive a 1099-NEC. If you work like an employee but get a 1099, that is worth questioning.

What the W-2 is#

The W-2 is the summary of your whole year. Your employer has to send it to you by 31 January for the year before. It shows everything you earned and everything withheld.

The boxes worth knowing:

• Box 1: total wages subject to federal income tax
• Box 2: federal income tax withheld during the year
• Boxes 3 and 5: wages counted for Social Security and Medicare
• Boxes 16 and 17: state wages and state tax

You need the W-2 to file your tax return. If more was withheld across the year than you actually owed, you get the difference back. A great many lower-income workers receive a refund, particularly those who qualify for the Earned Income Tax Credit.

How long to keep the paperwork#

• Pay stubs: keep them until that year's W-2 arrives, then check the two against each other
• W-2s and tax returns: keep for at least three years. You will need them for a mortgage, for benefits applications, and for immigration filings

Photographing each stub into a folder on your phone is the simplest system. Thermal paper fades within months.

What to do next#

• Take out your most recent pay stub and find three numbers: gross pay, net pay, and hours worked
• Compare those hours against your own record
• If they differ, query it with payroll in writing, by text or email, so there is a record