Understanding Your Paycheck: Deductions Explained

What is the difference between gross pay and net pay?

Gross pay is the number on your offer letter: salary or hourly rate times hours, plus any overtime, bonuses, commissions, and tips. Net pay is the deposit that hits your bank account. Between those two numbers sit every deduction your employer is required, or you asked, to take out.

A typical employee at a $75,000 salary loses roughly 18 percent to federal income tax and FICA alone, before state tax or benefits enter the picture. That is not a rounding error. It means a $75,000 salary feels like about $61,600 a year in your pocket, roughly $2,369 every two weeks, and the rest went to taxes you are legally required to pay. My honest take: the sooner you internalize that your salary is not your money, the sooner your budgeting starts working. Budget from net pay. The gross number is for negotiating; the net number is for living.

What does federal income tax withholding actually do?

Federal withholding is your employer sending a chunk of each paycheck to the IRS as a prepayment of your income tax. It is not a second tax on top of income tax. When you file your return, everything reconciles: total withheld minus actual tax owed equals your refund or your balance due.

How much gets withheld depends on your W-4, your pay frequency, and your estimated taxable income. Here is how the 2026 math works for a single filer earning $75,000 with no special adjustments. First subtract the 2026 standard deduction of $16,100, which leaves $58,900 of taxable income. The brackets apply in slices: 10 percent on the first $12,400 ($1,240), 12 percent on the next $38,000 ($4,560), and 22 percent on the remaining $8,500 ($1,870). Total federal income tax: $7,670 for the year, or $295.00 per biweekly paycheck.

Notice the marginal rate here is 22 percent, but the effective rate on the whole salary is only about 10 percent. Confusing those two is the most common tax mistake I see. You are never taxed 22 percent on all your income, only on the dollars that fall in that slice.

How does FICA tax work?

FICA, the Federal Insurance Contributions Act, is the pair of payroll taxes that fund Social Security and Medicare. Three things make it different from income tax: it applies to your full wages before almost all deductions, your employer matches it dollar for dollar, and you cannot adjust it with a W-4.

The Social Security portion is 6.2 percent of wages, but only up to the annual wage base, which is $184,500 for 2026. Earn $184,500 by October and your Social Security withholding stops for November and December, which is a nice surprise if you have never seen it happen. The maximum employee Social Security tax for 2026 is $11,439. The Medicare portion is 1.45 percent on every dollar of wages with no cap at all. High earners pay an additional 0.9 percent Medicare tax on wages above $200,000 (single) or $250,000 (joint), which employers must withhold once your pay passes $200,000 regardless of filing status.

On our $75,000 example: Social Security is 6.2 percent of $75,000, or $4,650 a year ($178.85 per paycheck). Medicare is 1.45 percent of $75,000, or $1,087.50 a year ($41.83 per paycheck). FICA total: $5,737.50 a year, $220.67 per biweekly paycheck. Combined with the $7,670 of federal income tax, this worker sends $13,407.50 to the federal government each year before any state tax or benefits. My recommendation: when comparing job offers, remember FICA is a flat 7.65 percent on nearly everyone. State taxes are where offers actually differ.

What is the difference between pre-tax and post-tax deductions?

After the government takes its mandatory share, your own choices take the next bite. Deductions split into two camps, and the distinction matters more than most people realize.

Pre-tax deductions come out before income tax is calculated, which shrinks your taxable income. Traditional 401(k) contributions, HSA contributions, and your share of employer health premiums are usually pre-tax. Take our $75,000 worker contributing 6 percent ($4,500 a year) to a traditional 401(k). Taxable income drops from $58,900 to $54,400, and federal tax falls from $7,670 to $6,680: a $990 saving, exactly 22 percent of the contribution, because that worker's marginal rate is 22 percent. Note that FICA still applies to the full $75,000. Pre-tax deductions dodge income tax, not payroll tax.

Post-tax deductions come out after taxes: Roth 401(k) contributions, disability insurance, union dues, and charitable payroll gifts. You pay tax now, but Roth money grows and withdraws tax-free in retirement. Here is my genuine opinion: if you are early in your career in a low bracket, lean Roth. If you are in your peak earning years at 24 or 32 percent, lean pre-tax and bank the savings. Most people should probably hold some of both.

How do state and local taxes affect your paycheck?

State income tax is the wild card. Nine states have no broad-based individual income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), so a worker there simply skips this line. Everyone else pays something, and the something ranges from modest flat taxes to California-style brackets topping 13.3 percent.

Then there are local taxes, which people forget to budget for. New York City, many Ohio cities, and parts of Pennsylvania and Maryland add their own income or payroll taxes on top of the state. Remote work made this messier: your employer generally withholds for the state where you physically work, so moving mid-year or working across state lines can leave you with two states' withholding and a confusing return. If anything about your work location changed this year, look at the state line on your pay stub right now, not in April.

Why does my first paycheck of the year look different from my last?

A few things change the size of your deposit over the course of the year, and none of them mean your employer made a mistake. If you earn above $184,500, your Social Security withholding stops once you cross the wage base, and late-year paychecks get noticeably bigger. Benefit deductions sometimes pause too: many employers only take health premiums or 401(k) contributions from the first two paychecks of a month, so a third paycheck in a month can look like a windfall. Raises, bonus payouts, and mid-year W-4 changes also shift the numbers. The fix is simple: compare pay stubs line by line instead of comparing just the deposit total.

How can I estimate my take-home pay before accepting a job?

Do not accept an offer based on salary alone. Run the full calculation once and you will never be surprised again. For a $75,000 salary paid biweekly in 2026, single filer, no state tax, 6 percent traditional 401(k), and $150 a month in health premiums:

Gross per paycheck: $2,884.62. Federal income tax: $256.92 (the 401(k) brought it down from $295.00). FICA: $220.67. Health premiums: $69.23. Net paycheck: $2,337.81, or about $5,065 a month. That is the real number to compare against your rent, your car payment, and your savings goals. Our Paycheck Calculator runs this exact math for any salary, pay schedule, and filing status, and the Salary to Hourly Calculator converts offers between formats so you can compare them apples to apples.

Tax figures use 2026 federal brackets, the $16,100 single standard deduction, and the $184,500 Social Security wage base. Estimates for planning only, not tax advice.