Understanding Your Paycheck: Gross Pay vs Net Pay
If you've ever compared your salary to what actually lands in your bank account, you've felt the gap between gross pay and net pay. Gross pay is everything you earned before anything is withheld. Net pay — sometimes called take-home pay — is what's left after taxes and deductions. Understanding what happens in between makes it much easier to plan a budget around your real, spendable income.
What comes out of your paycheck
| Deduction | What it is |
|---|---|
| Federal income tax | Withheld based on your W-4 elections and the federal tax brackets for your filing status |
| State income tax | Withheld in most states (a handful, like Texas and Florida, have no state income tax) |
| Social Security (FICA) | 6.2% of wages up to the annual wage base limit |
| Medicare (FICA) | 1.45% of all wages, plus an extra 0.9% on income above a high-earner threshold |
| Pre-tax deductions | 401(k) contributions, health insurance premiums, HSA/FSA contributions — subtracted before income tax is calculated |
| Post-tax deductions | Roth 401(k) contributions, wage garnishments, some benefit premiums — subtracted after tax is calculated |
A worked example: $60,000 salary
Here's a simplified breakdown for a single filer earning $60,000/year, contributing 5% to a traditional 401(k), using 2026 federal figures:
| Line item | Annual amount |
|---|---|
| Gross pay | $60,000.00 |
| Pre-tax 401(k) contribution (5%) | −$3,000.00 |
| Wages subject to income tax | $57,000.00 |
| Standard deduction (single) | −$16,100.00 |
| Taxable income | $40,900.00 |
| Federal income tax (2026 brackets) | −$4,660.00 |
| Social Security (6.2% of gross) | −$3,720.00 |
| Medicare (1.45% of gross) | −$870.00 |
| Estimated net pay (before state tax) | $47,750.00 |
Notice that Social Security and Medicare are calculated on the full $60,000 gross pay, not the reduced $57,000 — FICA taxes aren't affected by pre-tax retirement contributions the way federal income tax is. State income tax, if applicable, would reduce this further. (Real-world paycheck withholding uses IRS percentage tables rather than the annual bracket math shown here, so an actual pay stub may differ slightly from this year-end estimate.)
Why pre-tax deductions are worth paying attention to
Because pre-tax deductions reduce the income federal tax is calculated on, contributing to a traditional 401(k) or a health savings account effectively costs less than the sticker amount. In the example above, the $3,000 contribution reduced taxable income by $3,000, saving $360 in federal tax at the 12% marginal rate — so the $3,000 going into retirement savings only reduced take-home pay by about $2,640 after that tax savings.
Understanding your W-4
Your Form W-4 tells your employer how much federal tax to withhold from each paycheck. Filing status, number of dependents, and any additional income or deductions you list all affect the withholding calculation. Withholding too little can leave you owing money at tax time; withholding too much means you're giving the government an interest-free loan until you get it back as a refund. Reviewing your W-4 after a major life change — a new job, marriage, a new dependent — helps keep withholding accurate.
This article is general information, not tax advice. Actual withholding depends on your specific W-4 elections, state of residence, and benefit elections — consult a tax professional or your payroll department for figures specific to you.