Your net (take-home) pay is your gross pay minus federal income tax, state income tax, Social Security (6.2%), Medicare (1.45%), and any voluntary deductions like health insurance and retirement contributions. Most workers take home 60% to 75% of their gross pay.
- Gross pay = total earnings before deductions
- Net pay = what hits your bank account
- Pre-tax deductions reduce taxable income and increase take-home pay
Understanding Gross vs Net Pay
Gross pay is the total amount you earn before any deductions. For salaried employees, it is your annual salary divided by the number of pay periods. For hourly employees, it is your hourly rate multiplied by hours worked.
Net pay (take-home pay) is what remains after all mandatory and voluntary deductions. This is the amount deposited into your bank account or printed on your paycheck.
| Gross Pay | Net Pay | |
|---|---|---|
| Definition | Total earnings before deductions | Amount after all deductions |
| Federal tax | Included | Subtracted |
| FICA taxes | Included | Subtracted |
| State/local tax | Included | Subtracted |
| Voluntary deductions | Included | Subtracted (if applicable) |
| What you see | On your offer letter / contract | In your bank account |
What Gets Deducted From Your Paycheck
Here is a typical breakdown of deductions on a biweekly paycheck for someone earning $60,000/year as a single filer in a state with a 5% flat income tax:
| Deduction | Amount (Biweekly) | Annual |
|---|---|---|
| Gross Pay | $2,307.69 | $60,000 |
| Federal Income Tax | ~$217 | ~$5,642 |
| State Income Tax (5%) | ~$100 | ~$2,600 |
| Social Security (6.2%) | $143.08 | $3,720 |
| Medicare (1.45%) | $33.46 | $870 |
| Health Insurance | ~$100 | ~$2,600 |
| 401(k) (6%) | $138.46 | $3,600 |
| Net Pay (approx.) | ~$1,576 | ~$40,968 |
401(k) and health insurance are typically deducted pre-tax, reducing your taxable income. In this example, the $138.46 biweekly 401(k) contribution saves approximately $33 in federal tax per paycheck. Pre-tax deductions are one of the most effective ways to increase your take-home pay while building wealth.
Mandatory vs Voluntary Deductions
| Type | Examples | Can You Opt Out? |
|---|---|---|
| Mandatory | Federal income tax, state income tax, Social Security, Medicare | No |
| Court-ordered | Wage garnishments, child support, tax levies | No |
| Voluntary (pre-tax) | 401(k), 403(b), HSA, FSA, health/dental/vision insurance | Yes |
| Voluntary (post-tax) | Roth 401(k), life insurance, union dues, charitable donations | Yes |
Mandatory deductions are required by law and cannot be avoided. Voluntary deductions are elected by the employee and can typically be changed during open enrollment or after a qualifying life event.
How to Read Your Pay Stub
A pay stub typically includes four key sections. Understanding each section helps you verify that you are being paid correctly.
Most pay stubs also show year-to-date (YTD) totals. Reviewing YTD amounts periodically helps you track whether your withholding is on pace to match your expected tax liability.
Once your YTD wages reach $176,100, Social Security withholding should stop for the rest of the year. If your employer continues to withhold SS tax beyond the wage base, contact payroll immediately to correct it.
Maximizing Your Take-Home Pay
Frequently Asked Questions
PAYHROLL handles this automatically
Stop calculating manually. PAYHROLL automates paycheck calculations, tax withholding, and payroll compliance for your entire team.
Related Calculators
Paycheck Calculator
Calculate your take-home pay after federal, state, and FICA taxes. Enter your salary or hourly rate, filing status, and state to see a full paycheck breakdown.
Salary to Hourly
Convert your annual salary to an hourly rate. See what your salary works out to per hour, day, week, and month based on your work schedule.
Hourly to Salary
Convert your hourly wage to an annual salary. See what your hourly rate adds up to per week, month, and year based on your work schedule.