If you’re among the millions of people who are about to enter the workforce, it’s an exciting time.

You’re taking a huge step towards independence and freedom. One of the best things about entering the workforce is that first paycheck.

You did the math, checked out some free tax tools, and you look at your pay stub to find that it’s less than you expected. There are codes and deductions that you don’t understand.

Are you ready to find out how to read a pay stub? Let’s get started!

Decoding Pay Stub Codes

When you first look at your pay stub, you’ll see a number of different codes. Some of the codes will vary from one company to another. These are the most common ones to look for.

Net Pay: This is the amount of money that you get after all of the other deductions are taken out. You’ll know how much your net pay was when you look to see what your direct deposit amount was.

Gross Pay: This is the amount of money you actually earned before deductions. You would calculate your gross pay by taking the hours worked and multiply by your hourly rate.

Salaried employees would take the annual salary and divide that by the number of pay periods.

FED: Federal income tax withheld. When you first started your job, you filled out a W-4 form. This gives your employer instructions as to how much they should withhold from your earnings. That what the allowances are for.

When you claim zero allowances, you have more taken out, but you may get a refund. The more allowances you have, the more money you’ll have in your paycheck. You’re also going to owe the IRS.

You want to make sure you break even, so check the IRS withholding calculator.

STATE: You may live in a state that collects income taxes. If so, you’ll have additional taxes withheld for state and local taxes.

YTD: Year to date. You’ll see two sets of numbers on your pay stub. The first is how much is withheld for that pay period. The second set of numbers details how much has been withheld for the calendar year.

MED: You have to pay 1.45% of your earnings for Medicare.

SSI: This is for the 6.2% of your income that goes towards social security. The money taken out of your paycheck for social security and Medicare is matched by your employer, which doubles your contribution.

How to Predict Deductions

It can be hard to figure out how much you’re going to have taken out for taxes. When you’re just getting by, even a few dollars in your paycheck can make a big difference.

You can get an idea as to how much will be taken out of your paycheck by creating pay stubs for yourself at PayStubs.net. This is also a good way to maintain records for yourself throughout the year.

How to Read a Pay Stub

Knowing how to read a pay stub is an important skill. It’s how you can tell how much you pay in federal and state taxes throughout the year.

That simple understanding can help you pay the right amount of taxes, so you don’t owe the IRS in April. Ignoring the pay codes can lead to tax trouble down the road.

Come back to this site often for more great tips and articles.