Gross Pay vs. Net Pay
Gross pay is your total earnings before anything is withheld. Net pay (take-home pay) is what actually hits your bank account after all deductions. For most US employees, net pay is 70-80% of gross pay, depending on income level, state, and benefit elections.
Federal Income Tax
Withheld based on the information on your W-4 form (filing status, dependents, additional withholding) and the IRS's progressive tax brackets. You don't pay one flat rate on your whole income — each portion of income is taxed at the rate for its bracket, so your effective rate is lower than your top marginal rate.
FICA: Social Security and Medicare
- Social Security tax: 6.2% of wages, up to an annual wage base limit ($168,600 for 2024, adjusted yearly). Income above the cap isn't subject to this tax.
- Medicare tax: 1.45% of all wages, with no cap. High earners pay an additional 0.9% Medicare surtax above certain income thresholds.
Together these are called FICA (Federal Insurance Contributions Act) taxes, and your employer matches both amounts on your behalf (a cost to them, not visible on your pay stub).
State and Local Income Tax
Varies enormously — nine states have no state income tax at all (as of this writing), while others have progressive brackets similar to the federal system. Some cities (like New York City) add their own local income tax on top of state tax.
Pre-Tax Deductions
These reduce your taxable income before federal (and often state) tax is calculated — a genuine tax advantage:
- Traditional 401(k)/403(b) contributions
- Health insurance premiums (if offered through a Section 125 cafeteria plan)
- HSA/FSA contributions
- Traditional pre-tax commuter benefits
Post-Tax Deductions
Taken out after taxes are calculated, so they don't reduce your taxable income:
- Roth 401(k) contributions
- Disability or supplemental life insurance premiums (often intentionally post-tax so any future benefit payout is tax-free)
- Wage garnishments, if applicable
- Union dues
Reading Your Actual Pay Stub
A typical pay stub shows, in order: gross pay for the period, each deduction line with its own amount, and net pay. Year-to-date (YTD) columns show cumulative totals for the calendar year — useful for tracking whether you're on pace to hit contribution limits (like the 401(k) annual max) or the Social Security wage base.
Use a Paycheck Calculator to estimate your own take-home pay and compare it against your actual stub — a mismatch is worth investigating with your payroll department.