Your salary and your paycheck are two very different numbers. The figure in your offer letter is gross pay; the amount that actually reaches your bank account — after taxes and deductions — is net pay, or take-home pay. The gap between them is often 25 to 35 percent, and understanding where it goes helps you budget accurately, evaluate a job offer, and make smart choices about retirement contributions. This guide walks through every line on a typical US pay stub.
Gross pay vs. net pay
Gross pay is your total earnings for the pay period before anything is taken out. Net pay is what's left after pre-tax deductions, income taxes, and payroll taxes are withheld. On a $90,000 salary paid biweekly, gross pay per check is about $3,461 — but take-home is closer to $2,500 once everything is withheld.
Deductions fall into two buckets that come out in a specific order: pre-tax deductions first (which lower your taxable income), then taxes calculated on what remains. Understanding that order is the key to understanding why a 401(k) contribution costs you less than its face value.
Federal income tax withholding
The largest single deduction for most workers is federal income tax. The US uses a progressive system: income is taxed in brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%), and only the income that falls within each bracket is taxed at that bracket's rate. This is why your marginal rate (the rate on your last dollar) is higher than your effective rate (total tax divided by total income).
Your employer estimates your annual tax from the W-4 you filled out and withholds a slice from each paycheck. If too much is withheld you get a refund at tax time; too little and you owe. Adjusting your W-4 lets you fine-tune that balance — a large refund isn't free money, it's an interest-free loan you made to the government.
FICA: Social Security and Medicare
FICA payroll taxes fund Social Security and Medicare and appear as separate lines on your stub. Social Security is 6.2% of wages up to an annual wage base (about $176,100 for 2025), after which it stops for the year. Medicare is 1.45% of all wages with no cap, plus an additional 0.9% on wages above $200,000 (single) or $250,000 (married filing jointly).
Unlike income tax, FICA is a flat rate and is charged on your gross wages — pre-tax 401(k) contributions do not reduce it. Your employer pays a matching 6.2% and 1.45% behind the scenes; if you're self-employed you pay both halves, totaling 15.3%, known as self-employment tax.
State and local taxes
Most states levy their own income tax, ranging from a flat percentage to progressive brackets of their own. Nine states — including Texas, Florida, Washington, and Nevada — have no state income tax, which meaningfully boosts take-home pay for the same salary. Some cities and counties add local income taxes on top.
Because state rules vary so widely, two people earning identical salaries can have noticeably different paychecks simply based on where they live. When comparing job offers in different states, always compare net pay, not gross — and factor in cost of living, which often offsets a no-tax state's advantage.
Pre-tax deductions and the 401(k) tax shield
Pre-tax deductions — traditional 401(k) contributions, health and dental premiums, HSA and FSA contributions — come out before income tax is calculated, so they shrink the income you're taxed on. This creates a 'tax shield': a $500 traditional 401(k) contribution might only reduce your paycheck by around $375, because the other ~$125 would have gone to taxes anyway.
That's why financial planners urge people to at least contribute enough to capture any employer 401(k) match — it's an immediate, guaranteed return on top of the tax savings. Roth 401(k) contributions work differently: they're taken after tax, so they don't lower today's taxable income, but qualified withdrawals in retirement are tax-free. The Take-Home Paycheck Calculator lets you see exactly how changing your contribution rate affects your net pay.
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Frequently Asked Questions
Why is my take-home pay so much less than my salary?+
Federal income tax, Social Security (6.2%), Medicare (1.45%), state income tax, and pre-tax deductions like 401(k) and health premiums all come out before you're paid. Combined, they commonly reduce gross pay by 25-35%, depending on your bracket, state, and contributions.
How can I increase my take-home pay?+
Options include adjusting your W-4 so you're not over-withholding (you get more per check but a smaller refund), reducing pre-tax deductions (though that raises your taxes and cuts retirement saving), or moving to a lower-tax state. Note that lowering 401(k) contributions increases take-home now but costs you growth and any employer match later.
Does a bigger 401(k) contribution lower my paycheck dollar for dollar?+
No — because traditional 401(k) contributions are pre-tax, a $500 contribution reduces your paycheck by less than $500 (often around $375), since part of that money would otherwise have gone to income tax. This 'tax shield' is one of the main advantages of a traditional 401(k).
Is a large tax refund a good thing?+
Not really. A refund means you overpaid taxes during the year and gave the government an interest-free loan. Adjusting your W-4 to withhold closer to what you actually owe puts that money in your paychecks throughout the year, where you can save or invest it instead.