Your paycheck shrinks from gross to net because of four main deductions: federal income tax, FICA payroll taxes (Social Security 6.2% + Medicare 1.45% = 7.65%), state and local income tax, and pre-tax benefit deductions like 401(k) contributions, HSA, and health insurance premiums. On a typical $60,000 salary, FICA alone is exactly $4,590 a year ($60,000 x 0.0765), and that is before a single dollar of income tax. This guide breaks down each line on your stub in plain English, with recomputed examples, so you understand precisely where your money goes. To skip the hand math, run your numbers through our take-home pay calculator.
The four things withheld from every US paycheck
Every paycheck deduction falls into one of four buckets. Some are mandatory taxes you cannot avoid; others are optional benefits you choose to fund before tax. Here is the order they typically come out and what each one does.
- Pre-tax deductions (taken first): 401(k) or 403(b), traditional, HSA, FSA, and most health, dental, and vision premiums. These come out before taxes are calculated, which lowers your taxable wages.
- FICA payroll taxes: Social Security at 6.2% and Medicare at 1.45%, a combined 7.65% flat on your wages.
- Federal income tax: withheld based on your W-4, filing status, and the IRS bracket structure.
- State and local income tax: varies wildly, from 0% in states with no income tax to roughly 5% to 10%+ in high-tax states and some cities.
The big surprise for most people is that the order matters. Because pre-tax deductions come out first, putting money into a 401(k) actually reduces both your federal and state income tax for the year. We will quantify that below.
FICA: the 7.65% you can never opt out of
FICA is a flat 7.65% of your wages, split into Social Security (6.2%) and Medicare (1.45%), and unlike income tax it has no brackets and no standard deduction. Your employer pays a matching 7.65% on top, but that part never appears on your stub.
Two details matter for accuracy:
- Social Security has an annual wage cap. The 6.2% applies only up to a yearly wage base limit set by the Social Security Administration; earnings above that cap are not subject to the Social Security portion. Most workers never hit it.
- Medicare has no cap, and an extra 0.9% Medicare surtax applies to high earners above a set threshold.
| Annual gross | Social Security (6.2%) | Medicare (1.45%) | Total FICA (7.65%) |
|---|---|---|---|
| $40,000 | $2,480.00 | $580.00 | $3,060.00 |
| $60,000 | $3,720.00 | $870.00 | $4,590.00 |
| $80,000 | $4,960.00 | $1,160.00 | $6,120.00 |
| $100,000 | $6,200.00 | $1,450.00 | $7,650.00 |
FICA is the most predictable line on your paycheck. If you ever want to sanity-check a stub, multiply your gross by 0.0765 and the Social Security plus Medicare lines should add up to that figure (until you reach the Social Security cap).
Federal income tax withholding
Federal income tax is withheld using a progressive bracket system, so it is not a flat percentage of your pay. Your employer estimates your annual tax from your W-4 and spreads it across your paychecks. Because the US uses marginal brackets, only the dollars inside each bracket are taxed at that bracket's rate.
Worked example, single filer, $70,000 gross with the standard deduction:
- Taxable income = $70,000 - $15,000 standard deduction = $55,000.
- The first chunk is taxed at 10%, the next at 12%, and the portion above the third threshold at 22%.
- Total federal income tax on $55,000 taxable works out to about $7,014.
That $7,014 is roughly 10.0% of the $70,000 gross, even though the top dollar sits in the 22% bracket. That gap between your top bracket and your real rate is the single most misunderstood part of a paycheck. We cover it in depth in our guide on effective vs marginal tax rates.
State and local income tax
State income tax is the single biggest reason two people with identical salaries take home very different amounts. Several states levy no income tax at all, some use a flat rate, and others use their own progressive brackets. A few cities add a local income tax on top.
Because this varies so much, any general take-home estimate is exactly that, an estimate. A $75,000 earner in a no-income-tax state keeps thousands more per year than the same earner in a high-tax state, with zero difference in gross pay. Always confirm your own state's rate before treating any net number as final.
Pre-tax deductions: the line that lowers your tax bill
Pre-tax deductions reduce your taxable wages, so every dollar you route into a traditional 401(k), HSA, or pre-tax health premium shrinks both your federal and state income tax. This is the one part of your paycheck you control.
Worked example, single filer earning $70,000 who contributes 10% ($7,000) to a traditional 401(k):
| Line item | No 401(k) | With 10% 401(k) |
|---|---|---|
| Gross wages | $70,000 | $70,000 |
| 401(k) (pre-tax) | $0 | -$7,000 |
| Wages subject to income tax (after $15,000 std deduction) | $55,000 | $48,000 |
| Federal income tax (approx) | $7,014 | $6,174 |
| FICA (7.65% on full $70,000)* | $5,355 | $5,355 |
*Note the catch: 401(k) contributions are pre-tax for income tax but you still pay FICA on them, which is why the FICA line does not change. Even so, the 401(k) contributor cut their federal income tax by roughly $840 while moving $7,000 into retirement. See how that compounds in our 401(k) calculator, and note that an employer match is free money on top.
HSA contributions are even stronger: when made through payroll, they are typically exempt from both income tax and FICA, making the HSA the most tax-efficient line on many paychecks.
Putting it together: gross to net on $70,000
Here is the full stack for a single filer earning $70,000 in a state with a roughly 5% flat income tax and no 401(k), so you can see how the four deductions combine into your real take-home pay.
| Item | Amount | % of gross |
|---|---|---|
| Gross annual pay | $70,000.00 | 100.0% |
| Federal income tax | -$7,014.00 | 10.0% |
| FICA (7.65%) | -$5,355.00 | 7.65% |
| State income tax (5% illustrative) | -$3,500.00 | 5.0% |
| Net (take-home) pay | $54,131.00 | 77.3% |
In this case the worker keeps about 77 cents of every gross dollar, for a combined effective deduction rate of roughly 22.7%. Add a 401(k) or HSA and the take-home percentage shifts because taxable income falls. Your own result depends on your filing status, state, and benefits, which is exactly why our take-home pay calculator lets you set a combined rate to model it.
Common mistakes that wreck your paycheck estimate
Most take-home errors are not math mistakes; they are assumption mistakes. Watch for these:
- Treating your marginal bracket as your real rate. Being in the 22% bracket does not mean 22% of your pay vanishes to federal tax. The real federal share on a $70,000 single salary is closer to 10%.
- Forgetting FICA is on top of income tax. The flat 7.65% is separate from and additional to your income tax, not part of it.
- Assuming 401(k) saves FICA. Traditional 401(k) cuts income tax but not Social Security or Medicare tax.
- Ignoring state tax. A national average rate is meaningless if your state has no income tax or a high one. Always use your own state.
- Confusing pay frequency with pay rate. A smaller weekly check is not lower pay; it is the same annual pay sliced into more pieces.
- Reading withholding as your final tax. Withholding is an estimate trued up on your April return; a refund means you over-withheld all year.
If you are budgeting, the order that matters is simple: gross pay is the headline, but net pay is what funds your life. Build your budget on net, then route raises into savings using our savings goal calculator before lifestyle creep absorbs them.
How to read your own pay stub line by line
You can verify almost every deduction on your stub in under five minutes with a calculator. Use the steps below.
- Find your gross pay for the period. This is the top number, before any deductions.
- Add up your pre-tax deductions. 401(k), HSA, FSA, and pre-tax health premiums lower your taxable wages.
- Check FICA. Social Security plus Medicare should equal 7.65% of your FICA-eligible wages.
- Confirm federal withholding direction. It should be a fraction of gross, not your full marginal bracket rate.
- Verify state and local lines against your state's published rate.
- Compare net to the model. Plug your gross and a combined effective rate into the take-home pay calculator and see if the net lands near your real check.
For the official, most accurate withholding picture, the IRS provides a free tool at the IRS Tax Withholding Estimator, which factors in your full situation and tells you whether to adjust your W-4.
Run your own numbers
Knowing the four deductions is the foundation; seeing them on your specific salary is the payoff. Enter your gross pay and an estimated combined rate in our take-home pay calculator to get an instant net figure, then compare it to your actual stub. If you are converting between an hourly offer and a salary first, start with the salary to hourly calculator or hourly to salary calculator, then apply your deductions to find what actually lands in your account. Browse more pay tools in the income category.
Try it yourself
Run your own numbers in the free Take-Home Pay Calculator — instant, private, no sign-up.
Open the Take-Home Pay Calculator →Frequently asked questions
- What is actually taken out of my paycheck?
- Four things come out of a US paycheck: federal income tax, FICA payroll taxes (Social Security 6.2% + Medicare 1.45% = 7.65%), state and local income tax, and any pre-tax deductions like 401(k), HSA, or health premiums. On a $60,000 salary, FICA alone is $4,590 a year before any income tax.
- How much is FICA on my paycheck?
- FICA is a flat 7.65% of your wages: 6.2% for Social Security and 1.45% for Medicare. On $50,000 that is $3,825 a year, and on $80,000 it is $6,120. Social Security stops at an annual wage cap, but Medicare has no cap and adds 0.9% for very high earners.
- Why is so much taken out of my first paycheck?
- A first paycheck can look small because FICA (7.65%), federal income tax, state tax, and your benefit deductions all hit at once, and new-hire withholding sometimes overestimates until your W-4 settles. The deductions are normal; if withholding looks too high, review your W-4.
- Does a 401(k) reduce all the taxes on my paycheck?
- No, a traditional 401(k) reduces your federal and state income tax but not FICA. You still pay the 7.65% Social Security and Medicare tax on contributions. A $7,000 contribution on a $70,000 single salary cuts federal income tax by roughly $840 while saving for retirement.
- What is the difference between gross pay and net pay?
- Gross pay is your total earnings before any deductions; net pay is what lands in your bank account after federal tax, FICA, state tax, and benefits are removed. A single filer earning $70,000 in a 5% state keeps about $54,131, or roughly 77% of gross.
- Why do two people with the same salary take home different amounts?
- The biggest reason is state income tax, which ranges from 0% in some states to over 9% in others, plus differences in filing status, pre-tax benefit choices, and local taxes. Identical gross pay can produce thousands of dollars of difference in annual take-home.
- Is my federal withholding my actual tax bill?
- No, withholding is only an estimate of your yearly tax spread across paychecks. Your true tax is settled on your April return; a refund means you over-withheld and an amount owed means you under-withheld. Adjust your W-4 to bring withholding closer to your real liability.
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