Your gross salary and your take-home pay are different numbers. The gap between them — all those lines on your pay stub — is a combination of taxes, insurance, and retirement contributions.
None of them are surprises once you understand what each one is.
Gross pay
This is your pay before any deductions. If you earn $60,000/year on a bi-weekly schedule, each paycheck's gross pay is $60,000 ÷ 26 = $2,307.69.
This is the number your W-2 will show for annual income.
Federal income tax withholding
Your employer withholds federal income tax from each paycheck based on your W-4 form. The W-4 tells your employer how much to withhold — it factors in your filing status (single, married, head of household), any additional income, and any deductions you want to claim.
The withholding is an estimate. Your actual tax liability gets settled when you file your return in April. If your employer withheld too much, you get a refund. Too little, and you owe.
State income tax
Varies by state. Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
In states that do have income tax, rates range from under 3% to over 13% (California). The withholding works the same way as federal — an estimate that gets reconciled at tax time.
FICA taxes — Social Security and Medicare
These are the mandatory federal payroll taxes that fund Social Security and Medicare.
- Social Security: 6.2% on income up to $168,600 (2024 wage base). Your employer also pays 6.2%.
- Medicare: 1.45% on all income. No cap. Your employer matches this too.
Total employee FICA: 7.65%. These are the same regardless of your W-4 elections. You can't opt out.
If you earn over $200,000 (single filer) or $250,000 (married), an additional 0.9% Medicare surtax applies.
Pre-tax deductions
These come out before taxes are calculated, which is why they reduce your taxable income.
401(k) contributions: If you contribute 6% of your salary to a 401(k), that 6% is deducted from your gross pay before the federal income tax calculation. You don't pay income tax on it now — you pay it when you withdraw in retirement.
Health insurance premiums: If your employer offers health insurance, your share of the premium is typically a pre-tax deduction.
FSA/HSA contributions: Flexible Spending Accounts and Health Savings Accounts are also pre-tax.
Post-tax deductions
These come out after taxes. Less common, but they exist.
Roth 401(k) contributions: Unlike traditional 401(k), Roth contributions are post-tax. You don't get a tax break now, but withdrawals in retirement are tax-free.
Life insurance over $50,000: If your employer provides life insurance above $50,000 in coverage, the value of the excess is taxable as imputed income.
Net pay
What's left after all deductions. This is what hits your bank account.
On a $2,307.69 gross paycheck, after federal withholding (~$230), Social Security ($143), Medicare ($33), state tax (varies), and a 6% 401(k) contribution ($138), you might take home roughly $1,650–$1,750. The exact number depends on your state, elections, and benefits.
The one thing people consistently miss
When you get a raise, the new rate doesn't apply to your full paycheck in all the ways you might expect. The marginal tax applies only to the additional amount — not to your entire salary. A raise from $60,000 to $70,000 means the extra $10,000 is taxed at your marginal rate, which is higher than your effective rate on the base salary.
Understanding this makes it easier to calculate what a raise is actually worth in take-home pay.
Related: Salary to Hourly: What You're Actually Earning Per Hour — the companion piece for comparing compensation across different pay structures.
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