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How to Read Your Paycheck: Gross vs Net Pay, FICA and Withholding Explained

Last reviewed October 8, 2026. Rates and limits come from the IRS and the Social Security Administration; we recalculated every example and list the sources at the end.

Your offer letter says $85,000. Your first paycheck is nowhere near $85,000 divided by 26. Before you start wondering where the rest went, it helps to know what each line on a pay stub means. This guide walks through the deductions on a typical US paycheck, with a worked example, and explains which ones you can influence.

Gross pay versus net pay

  • Gross pay is what you earn before anything is taken out.
  • Net pay, or take-home pay, is what lands in your bank account after taxes and other deductions.

Between the two sit three kinds of deductions: taxes, pre-tax benefits and post-tax deductions.

The taxes on a paycheck

1. Federal income tax withholding

Your employer withholds an estimate of your federal income tax from each paycheck, based on the information on your Form W-4: filing status, number of jobs, dependents and any extra withholding you request. It is an estimate, not your final bill. At filing time, your actual tax is compared with what was withheld, and you get a refund or owe the difference. You can see how the brackets work in our guide to federal income tax brackets.

2. Social Security tax

Employees pay 6.2% of wages for Social Security, and the employer pays a matching 6.2%. For 2026, this applies only to the first $184,500 of wages, so very high earners stop paying it partway through the year.

3. Medicare tax

Employees pay 1.45% of all wages for Medicare, with no cap, and the employer matches it. Employers also withhold an Additional Medicare Tax of 0.9% on wages above $200,000 in a calendar year, with no employer match.

Together, Social Security and Medicare are often called FICA, and for most employees below the Social Security limit they total 7.65%.

4. State and local taxes

Most states charge income tax, and some cities or counties do too. Some states, such as Texas and Florida, have no state income tax. A few states also take small payroll deductions for disability or family leave insurance.

Deductions that are not taxes

These appear on many pay stubs and are chosen by you or your employer's plans:

  • Pre-tax deductions: traditional 401(k) contributions, health insurance premiums paid through the employer, HSA or FSA contributions. These reduce the income your federal income tax is calculated on.
  • Post-tax deductions: Roth 401(k) contributions, union dues, wage garnishments, some insurance or benefits.

Pre-tax contributions are why your taxable wages can be lower than your gross wages. Many pay stubs show both numbers.

A worked biweekly example

Take a salary of $85,000 paid every two weeks (26 paychecks), single filer, standard deduction, no other deductions, to keep the arithmetic clear.

  • Gross per paycheck: 85,000 ÷ 26 = $3,269.23
  • Social Security (6.2%): $202.69
  • Medicare (1.45%): $47.40
  • Federal income tax: the annual tax on this income is about $9,870 (shown in our tax brackets guide). Spread over 26 pay periods, that is roughly $379.62 per paycheck. Real withholding tables differ slightly, but this is close.

Take-home before state tax and benefits: 3,269.23 − 202.69 − 47.40 − 379.62 = $2,639.52.

That is about 80.7% of gross. State income tax, health insurance premiums and retirement contributions come out of that figure.

Over the year, FICA alone is 85,000 × 7.65% = $6,502.50, and the employer pays a matching amount on top of your salary.

How a 401(k) changes the picture

If this person contributes 6% to a traditional 401(k), that is $196.15 per paycheck, taken before federal income tax. It lowers the federal tax withheld, so the paycheck falls by less than the contribution. At a 22% marginal rate, a $196 contribution reduces take-home pay by roughly $153, not $196. The Social Security and Medicare taxes still apply to the full amount, because 401(k) deferrals do not reduce FICA wages.

Why your actual paycheck may differ

  • Your W-4 settings change the federal withholding.
  • Pay frequency (weekly, biweekly, semi-monthly or monthly) changes the amount per check, though not the annual total.
  • Pre-tax benefits and post-tax deductions vary by employer.
  • State and local taxes differ by where you live and work.
  • Bonuses are often withheld at a flat supplemental rate, which can look high but is reconciled at filing time.
  • Semi-monthly versus biweekly pay produces 24 versus 26 paychecks a year, so the amounts differ.

Common questions

Why might my paychecks get bigger late in the year? If your pay is high enough to pass the Social Security wage limit, withholding for that 6.2% stops for the rest of the year, so each remaining check is larger. For most employees this never happens.

Is a big tax refund good? A refund is your own money returned, with no interest. A refund of $2,000 means about $167 a month was withheld in excess. If you would rather have it in each paycheck, update your W-4.

Why is my net pay lower than expected? Check for benefit premiums, retirement contributions and state taxes. The formula above gives a baseline, and each additional deduction reduces it further.

Estimate your own

You can enter your salary and state in our paycheck calculator, and convert hourly wages in the hourly to salary calculator. Treat the results as estimates, since only your pay stub shows your actual withholding.

How we checked these numbers

The Social Security wage limit and tax rates are taken from the Social Security Administration and the IRS. We recalculated the example by hand and with a script, and tested it in our calculators.

This article is general information and not tax or payroll advice. Rates and limits change each year. Check your pay stub, ask your payroll department or consult a tax professional.

Sources