How to Read Your Pay Stub (A Guide for High-Income Employees)

You get a pay stub every two weeks.

But when’s the last time you actually read it?

If you don’t understand your pay stub, you could be:

• Missing tax opportunities
• Under-saving for retirement
• Overpaying for benefits

Here’s what to look for (and why it matters):

Your pay stub generally includes:

• Personal details: Your name, employee ID, and pay period dates
• Employer information
• Earnings: Regular wages, bonuses, and other compensation
• Deductions: Benefits, taxes, and retirement contributions
• Taxable wages: The amount of income used to calculate taxes
• Year-to-Date (YTD) summaries

Let me breakdown each part and what you need to think about:

Gross Pay: Your Full Earnings Before Deductions

With a $300,000 annual salary and 24 pay periods, your regular gross pay is:

• $300,000 ÷ 24 = $12,500 per paycheck

Then let’s say you get a $100,000 bonus that will appear once per year.

This is typically seen in a dedicated "Bonus" earnings line.

Oftentimes, that bonus will be taxed differently and often more heavily, which we’ll cover later.

You may also see things like:

• Restricted stock vesting
• Paid time off
• Or other forms of income

Pre-Tax Deductions: Lowering Your Taxable Income

What Are Pre-Tax Deductions?

These are deductions taken from your gross pay before taxes are calculated. They reduce your taxable income, which in turn reduces how much you owe in federal income tax, state income tax, and FICA (Social Security + Medicare)—though some deductions only affect income tax, not FICA, like your 401() contributions.

Make sure you are looking throughout the year to see what has gone into:

• 401(k)
• HSA
• Dependent care FSA
• Mega backdoor Roth 401(k)

That way you ensure you get them maxed out before year end. I see so many people leave thousands on the table because they did not look.

Common Pre-Tax Deductions (With Annual Limits for 2025)

Key Point: These deductions are subtracted before taxes are calculated, so they effectively reduce your taxable wages, not your gross pay.

Example Breakdown (Per Paycheck)

Assuming full participation:

Taxes Withheld: What Gets Taken Out

Your pay stub will break out these mandatory withholdings:

This is an area that you need to look at.

Divide your total fed withholding by your income and see what rate that is. If you are a high earner like most of my clients making $750k+ and that rate is 15-20%, you may have some issues and may need to pay quarterly taxes.

In this section, you can also look and see something most times called stock offset. This is the amount of shares that were sold to cover taxes on your RSUs. What percent was this? If 22%, you may be underwithholding here as well.

Bonus and RSU Note: When your bonus is paid, it may be taxed using a flat supplemental rate:

• Federal: 22% (or 37% if considered excess supplemental)

So your bonus and your RSU vests will be taxed at a lower rate than your regular pay. If you have a lot of other income, this can lead to underpayment penalties or a large tax bill at the end of the year. Be aware of your tax payments and withholding throughout the year.

After-Tax Deductions: Not Tax-Sheltered, But Still Important

These come after taxes are applied.

Mega Backdoor Roth 401(k)

This strategy allows you to contribute after-tax dollars to your 401(k) beyond the $23,500 pre-tax limit—up to a combined $70,000 total (employee + employer + after-tax contributions).

Example:

• Employer match: $10,000
• Pre-tax 401(k): $23,500
• Remaining room: $36,500 for after-tax contributions

This will show up on your pay stub as:

• 401(k) After-Tax: Your post-tax contribution

This is also where you will see things like ESPP where you buy company stock, most times at a discount.

These are not deducted from taxable wages, but they still reduce your take-home pay.

Employer Benefits

Your pay stub may include the value of employer-paid perks:

• Employer 401(k) Match: This is what they have put in your 401(k)
• Employer HSA Contribution: The match to your HSA they may do. Know that if they do match, you can only do the max limit minus their match vs a 401(k) match does not change what you can put in.
• Group-Term Life Insurance: If coverage > $50,000, the excess shows as imputed taxable income
• Company Car: Personal use value is added as taxable income
• Employer Paid Disability Insurance: If the employer is paying for the insurance, then know the benefit would be taxable if you ever received it.
  • The opposite is also true - if you, the employee, pays for your disability insurance, should you need the benefit, you will not owe taxes.

These don’t affect take-home pay but are part of your total compensation and taxable income.

These are part of your total compensation even if they don’t show in your net pay.

Net Pay: Your Actual Take-Home Income

Once all deductions and taxes are applied, what’s left is your net pay—the amount that hits your bank account.

For example:

Year-to-Date (YTD) Tracking

This is the key to it all.

Always check YTD sections for:

• Total earnings so far
• Taxes withheld and if that matches your effective tax rate
• How much of your 401(k), HSA, or DCFSA you’ve contributed and how much room you have left
• Whether you’ve hit the Social Security wage cap ($176,100). You start taking home more after that.
• Bonus payment and one-time taxes
• RSUs and stock offset

Make sure you or someone on your financial team are reviewing your paystubs on a regular basis and nothing is being left on the table!