Paychecks and Personal Income Taxes · Lesson 1 of 3
Read Your Pay Stub and Fill Out Your W-4
Learn what each line on your pay stub means, fill out Form W-4 step by step, and avoid a surprise tax bill or a refund that is bigger than it needs to be.
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Parts of this lesson are not translated into your language yet, so they are shown in English.
In this lesson
What you will learn
- Identify each deduction on a pay stub, including income tax, Social Security, and Medicare.
- Explain how Form W-4 controls how much federal income tax is withheld from your pay.
- Decide when to update your withholding after a life change, such as a second job or a new child.
- Tell the difference between an employee (W-2) and an independent contractor (1099).
How this connects to class: In class, Module 3 introduced pay statements and Form W-4. This lesson adds a sample pay stub with real numbers, a walk-through of each W-4 step, and the rules for people who live in one part of the DC area and work in another.
Words to know
- Gross pay
- Your total pay before anything is taken out.
- Net pay
- The money you actually receive after taxes and other deductions. Also called take-home pay.
- Withholding
- Money your employer takes out of your pay and sends to the government to pay your taxes.
- Form W-4
- The federal form you give your employer to tell it how much federal income tax to take out of your pay.
- FICA taxes
- Social Security and Medicare taxes. FICA stands for the Federal Insurance Contributions Act.
- Independent contractor
- A self-employed worker. No tax is withheld, and the worker gets a Form 1099 instead of a Form W-2.
Your pay stub, line by line
A pay stub (also called a pay statement) comes with each paycheck or direct deposit, on paper or online. Check it every payday. It shows how your pay was figured, and it is often the first place to find a mistake.
- Gross pay
- Your hours times your pay rate, plus any overtime. This is your pay before anything is taken out.
- Pre-tax deductions
- Money taken out before some taxes are figured, such as health insurance or retirement savings. They lower the pay that is taxed.
- Taxes
- Federal income tax, state or DC income tax, Social Security, and Medicare.
- After-tax deductions
- Money taken out after taxes, such as union dues or a court-ordered wage garnishment.
- Net pay
- What is left for you. This is your take-home pay.
- YTD (year to date)
- Totals since January 1. Your Form W-2 for the year is based on these totals.
Also check your name, the dates of the pay period, your hours, and your pay rate. If something is wrong, tell your employer in writing right away and keep a copy.
Example
Ana's pay stub, with real numbers
Ana lives in Hyattsville, Maryland, and works as a medical assistant in Northwest DC. She earns $20 an hour and is paid every two weeks for 80 hours. Her health insurance comes out before taxes. The income tax amounts are only samples.
| Line on the stub | This pay period |
|---|---|
| Gross pay (80 hours × $20) | $1,600.00 |
| Health insurance (pre-tax) | −$60.00 |
| Social Security tax (6.2%) | −$95.48 |
| Medicare tax (1.45%) | −$22.33 |
| Federal income tax | −$101.00 |
| Maryland state and county income tax | −$98.00 |
| Net pay (take-home pay) | $1,223.19 |
$1,600 gross pay − $60 health insurance = $1,540 taxed for Social Security and Medicare
$1,540 × 6.2% = $95.48 for Social Security
$1,540 × 1.45% = $22.33 for Medicare
Notice that no DC tax comes out, even though Ana works in DC. DC does not tax the wages of people who live outside DC. Ana pays Maryland tax instead, and in Maryland that includes county income tax.
Social Security and Medicare: taxes that build your future
Social Security tax is 6.2% of your pay. Medicare tax is 1.45%. Your employer pays the same amounts again, in addition to your pay. Together these are called FICA taxes. Most workers cannot opt out of them.
These taxes pay for retirement, disability, and survivor benefits, and for Medicare health coverage, which usually starts at age 65. When you work and pay these taxes, you earn Social Security credits. In 2026, you earn one credit for each $1,890 you earn, up to four credits a year. Most people need 40 credits to get retirement benefits. (Social Security tax stops once your pay for the year reaches $184,500, the 2026 limit. Medicare tax has no limit.)
Make sure the name on your pay records matches your Social Security card, or your earnings may not be credited to you. You can check your earnings record with a free my Social Security account.
Fill out Form W-4, step by step
Form W-4 tells your employer how much federal income tax to take out of your pay. You fill it out when you start a job, and you can give your employer a new one at any time. Everyone completes Steps 1 and 5. Do Steps 2 to 4 only if they apply to you.
- Step 1, personal information: your name, address, Social Security number, and filing status (single or married filing separately, married filing jointly, or head of household).
- Step 2, more than one job: use this step if you have two or more jobs at the same time, or if you are married filing jointly and your spouse also works. The most accurate way is the free IRS Tax Withholding Estimator. If there are only two jobs in total and the pay is similar, you can check the box in Step 2(c) on the W-4 for both jobs.
- Step 3, children and other dependents: on the 2026 form, if your income will be $200,000 or less ($400,000 or less if married filing jointly), multiply the number of qualifying children under 17 by $2,200 and other dependents by $500. This lowers your withholding, because these credits lower your tax.
- Step 4, other adjustments: enter other income that has no tax taken out (4a), deductions other than the standard deduction (4b), or extra tax you want taken out of each paycheck (4c).
- Step 5, sign and date: the form is not valid without your signature.
If you have more than one job, fill out Steps 3, 4(a), and 4(b) on the W-4 for only one job, usually the one that pays the most. Leave them blank on the others.
The 2026 Step 4(b) worksheet includes new federal deductions for qualified tips and overtime pay. If you expect to claim them, adding them can raise your take-home pay. Learn who qualifies in File for Free and Claim the Credits You Earned.
Your state or DC has its own withholding form: Form D-4 in DC, Form MW507 in Maryland, and Form VA-4 in Virginia.
Example
Two jobs and a surprise tax bill
Lucía is single and lives in Alexandria, Virginia. She has two part-time jobs. Each pays $20,000 a year. She filled out a simple W-4 at each job and skipped Step 2.
Each employer thinks its job is her only job. So each one subtracts the full 2026 standard deduction ($16,100) before it figures her tax. These simplified numbers show federal income tax only. Real withholding tables differ a little, but the idea is the same.
| Line | Amount |
|---|---|
| Job 1 withholds: ($20,000 − $16,100) × 10% | $390 |
| Job 2 withholds the same | $390 |
| Total withheld during the year | $780 |
| Tax she really owes on $23,900 of taxable income ($40,000 − $16,100): 10% of the first $12,400, plus 12% of the rest | $2,620 |
| Amount she may owe when she files | $1,840 |
The fix: Lucía uses the IRS Tax Withholding Estimator, or checks the Step 2(c) box on the W-4 for both jobs. With the box checked, each employer uses half of the standard deduction and half of each tax bracket. A little more comes out of each paycheck, and there is no big bill at tax time.
With Step 2(c) checked: about $1,310 withheld per job × 2 jobs = about $2,620 for the year
Live in one place, work in another
Many people in the DC area live in one state or in DC and work in another. Between DC, Maryland, and Virginia, your wages are usually taxed only where you live. DC does not tax the wages of people who live outside DC. Maryland and Virginia generally do not tax the wages of people who live in DC or in each other's state.
- Live in Maryland or Virginia, work in DC: DC income tax should not come out of your pay. Give your employer DC Form D-4A (Certificate of Nonresidence). Your home state's tax should come out instead.
- Live in DC, work in Maryland or Virginia: give your employer Form MW507 (Maryland) or Form VA-4 (Virginia) to claim the exemption. You pay DC income tax.
- Live in Maryland and work in Virginia, or the reverse: usually only your home state taxes your wages, if you do not keep a home in the state where you work and do not spend more than 183 days a year there. Give your employer the form for the state where you work (VA-4 or MW507).
- Live in Maryland: your Maryland withholding also includes county income tax.
These rules are for wages. Check your first pay stub at a new job. If your home state's tax is not coming out, ask your payroll office. If your employer does not withhold it, you may need to pay that tax yourself during the year, so you do not owe a large amount, plus a penalty, when you file.
Watch out
Paid on a 1099 but treated like an employee?
An employee gets a Form W-2. The employer withholds taxes and pays half of the Social Security and Medicare tax. An independent contractor gets a Form 1099-NEC. Nothing is withheld, and the worker pays both halves as self-employment tax.
Some businesses call workers contractors to avoid paying taxes and benefits. This is called misclassification. You may be an employee if:
- The company sets your hours and tells you how to do the work.
- The company gives you the tools, supplies, or uniform.
- You are paid by the hour and cannot set your own prices.
- You work only for this company, with no end date.
- You get benefits, such as paid vacation.
If this sounds like your job, you can ask the IRS to decide with Form SS-8. The answer can take six months or more. If you were misclassified, Form 8919 may let you pay only the employee share of Social Security and Medicare tax. For free help, contact a Low Income Taxpayer Clinic or legal aid, such as Legal Aid DC, Maryland Legal Aid, or Legal Services of Northern Virginia.
Tip
Check your withholding every year
Use the IRS Tax Withholding Estimator early each year and after any big change, such as a new job, a second job, marriage, divorce, a new baby, or a big raise. It is free, needs no login, and takes about 25 minutes. Have your latest pay stub and last year's tax return ready.
The goal is a small refund or a small bill. A very large refund means too much of your own pay was held all year, with no interest paid to you. A large bill means too little was taken out.
Only claim exempt from withholding if you owed no federal income tax last year and expect to owe none this year. An exempt W-4 lasts for one year. For 2026, you must give your employer a new one by February 16, 2027.
Key takeaways
- Gross pay is what you earn. Net pay is what you take home after taxes and other deductions.
- Social Security (6.2%) and Medicare (1.45%) come out of almost every paycheck and count toward your future benefits.
- Give your employer a new W-4 when your life changes, such as a second job, marriage, or a new child.
- Between DC, Maryland, and Virginia, your wages are usually taxed only where you live, not where you work.
- If a company controls how, when, and where you work, you may be an employee, even if it gives you a 1099.
Check your understanding
Answer the questions, then select Check my answers. Get 4 of 5 right to complete this lesson. This is practice: there is no time limit, and we do not keep your answers.
Go further
Trusted websites where you can learn more. These links go to other websites that Dollar Scholars does not run.
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Tax Withholding Estimator (another website)
A free tool, with no login, that helps you fill out Form W-4 so the right amount of tax comes out of your pay.
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Estimador para retención de impuestos (another website)
The IRS Tax Withholding Estimator page in Spanish.
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Independent contractor (self-employed) or employee? (another website)
How the IRS decides if a worker is an employee or a contractor, and what to do if you think you were misclassified.
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Reciprocity (another website)
Which state taxes your wages when you live in Virginia and work in DC or Maryland, or the reverse.
This lesson is general financial education, not legal, tax, or financial advice. Rules and amounts change, so check important numbers with an official source.