How to Read Your Paycheck: Gross Pay, Net Pay & Deductions Explained
Your gross pay and net pay can differ by 25–40%. Here's what every line on your pay stub means — federal and state taxes, Social Security, Medicare, and voluntary deductions — with a worked example.
Gross Pay vs Net Pay
Gross pay is what you earn before any deductions — your salary or hourly wages × hours worked, before taxes or any withholding.
Net pay (take-home pay) is what actually hits your bank account after all deductions are subtracted.
The difference between the two is typically 25–40% of gross pay for most American workers, depending on income level, state, and voluntary deductions.
Use our Salary Calculator to convert between hourly, weekly, and annual pay and estimate take-home amounts.
A Real Pay Stub Example
Let's use: $75,000 annual salary, single filer, biweekly pay (26 periods/year)
Gross pay per period: $75,000 ÷ 26 = $2,884.62
| Line Item | Amount | Notes |
|---|---|---|
| Gross pay | $2,884.62 | Before deductions |
| Federal income tax | −$299.60 | Based on W-4, 22% marginal bracket |
| Social Security | −$178.85 | 6.2% of gross, up to $176,100 limit |
| Medicare | −$41.83 | 1.45% of gross (no cap) |
| State income tax (e.g. 5%) | −$144.23 | Varies by state |
| Health insurance premium | −$125.00 | Employer-sponsored plan |
| 401(k) contribution (6%) | −$173.08 | Pre-tax, reduces taxable income |
| Net pay | $1,922.03 | What you receive |
Effective take-home rate: $1,922 ÷ $2,884 = 66.6% — about 33% deducted.
Federal Income Tax Withholding
Federal tax is withheld based on your W-4 form. The W-4 asks about filing status, dependents, and any additional withholding. The IRS Publication 15-T tables translate these inputs into a per-period withholding amount.
If you owe at tax filing time, it means too little was withheld during the year. If you get a large refund, too much was withheld — you essentially gave the IRS an interest-free loan. Adjusting your W-4 can reduce or increase withholding.
See: 2025 Federal Tax Brackets Explained for how progressive taxation determines your actual liability.
FICA Taxes: Social Security and Medicare
Social Security: 6.2% of gross wages, up to $176,100 in 2025. Your employer pays another 6.2% on your behalf. Self-employed workers pay both halves (15.3% total) via self-employment tax.
Medicare: 1.45% of all wages, no income cap. Earners above $200,000 (single) pay an additional 0.9% Additional Medicare Tax.
These are mandatory — they can't be adjusted on your W-4.
Pre-Tax vs Post-Tax Deductions
This distinction significantly affects your taxable income:
Pre-tax deductions (reduce federal taxable income):
- 401(k) traditional contributions
- Health, dental, and vision insurance premiums (employer-sponsored)
- Health Savings Account (HSA) contributions
- Flexible Spending Account (FSA) contributions
Post-tax deductions (taken from net pay, don't reduce taxes):
- Roth 401(k) contributions (taxed now, tax-free in retirement)
- Life insurance above $50,000 coverage
- Wage garnishments
- Union dues
In our example, the $173 401(k) contribution is pre-tax — it reduces the income that federal and state taxes are calculated on, saving approximately $38–$45 per paycheck in taxes.
State Income Tax
43 states plus DC have state income taxes. Rates range from a flat 3–5% to graduated brackets reaching 10%+ in California (13.3%) and Oregon (9.9%). Nine states have no income tax: Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Tennessee, New Hampshire, and Alaska.
Understanding Your YTD Figures
Pay stubs also show year-to-date (YTD) totals — the cumulative amounts from January 1 through the current pay period. These are useful for:
- Verifying annual W-2 figures at tax time
- Tracking when you'll hit the Social Security wage cap ($176,100 in 2025)
- Monitoring total retirement contributions vs annual limits ($23,500 in 2025)
Conclusion: Key Takeaways
- Gross pay = earned wages before deductions; net pay = what you take home
- A $75,000 salary ($2,884 biweekly gross) typically nets ~$1,922 after federal tax, FICA, state tax, insurance, and 401k
- FICA = Social Security (6.2%) + Medicare (1.45%) — mandatory, not adjustable
- Pre-tax deductions (401k, health insurance) reduce your taxable income and save money
- Use W-4 adjustments to control over/under-withholding of federal tax
Also see: 2025 Federal Tax Brackets Explained to understand how your withholding connects to your actual annual tax liability.