When you accept a job at a $60,000 salary, you might expect $5,000 to land in your bank account each month. Instead, the deposit is closer to $4,000 — sometimes less. The gap between the number on your offer letter and the number that actually reaches your account is the difference between gross pay and net pay. Understanding what fills that gap — payroll taxes, income tax withholding, and voluntary deductions — is one of the most useful pieces of personal finance literacy, because it affects every budgeting decision you make. This guide breaks down each deduction line on a typical US paycheck and shows how to estimate your own take-home pay.
Gross Pay vs. Net Pay: The Core Difference
Gross pay is your total compensation before any deductions — your annual salary divided by the number of pay periods, or your hourly rate multiplied by hours worked (plus overtime, bonuses, and commissions). Net pay, often called take-home pay, is what remains after every mandatory and voluntary deduction is subtracted. On a US pay stub, you will see gross pay at the top, a list of deductions in the middle, and net pay at the bottom.
Deductions fall into three broad categories: mandatory payroll taxes (FICA), income tax withholding (federal and, in most states, state), and voluntary deductions you elect (retirement contributions, health insurance premiums, and similar benefits). The Salary Calculator models these layers so you can convert a gross salary into an estimated net paycheck. If you are self-employed or paid on contract, the picture differs in important ways — our companion guide on gross-to-net pay for freelancers covers self-employment taxes and quarterly estimates.
FICA: Social Security and Medicare Taxes
FICA stands for the Federal Insurance Contributions Act, the law that funds Social Security and Medicare through payroll taxes. FICA is not optional and does not depend on your W-4 choices — it is a flat percentage of your wages, split between you and your employer.
- Social Security tax: 6.2% is withheld from your paycheck, and your employer pays a matching 6.2%, for a combined 12.4%.
- Medicare tax: 1.45% is withheld from your paycheck, and your employer matches it, for a combined 2.9%.
Together, the employee share of FICA is 7.65% of gross wages (6.2% + 1.45%). On a $60,000 salary, that is $3,720 for Social Security plus $870 for Medicare — $4,590 per year, or about $382.50 per month, deducted before you ever see the money.
Two details matter. First, Social Security tax only applies up to an annual wage base limit. For 2026, the maximum earnings subject to Social Security tax is $184,500 (up from $176,100 in 2025); wages above that ceiling are not subject to the 6.2% Social Security tax. Medicare tax, by contrast, has no wage cap — the 1.45% applies to every dollar of covered wages. Second, high earners pay an Additional Medicare Tax of 0.9% on wages above $200,000 (single filers), $250,000 (married filing jointly), or $125,000 (married filing separately). Employers begin withholding this extra 0.9% once your year-to-date wages with that employer pass $200,000, regardless of filing status, and there is no employer match on the additional amount.
Federal Income Tax Withholding
The largest deduction for many workers is federal income tax. Unlike FICA's flat rate, federal income tax is progressive: income is taxed in layers, and each layer (bracket) is taxed at a higher rate. Only the income that falls within a given bracket is taxed at that bracket's rate — a common misconception is that moving into a higher bracket raises the tax rate on all your income, which is not how it works.
For tax year 2026, single filers face these marginal rates: 10% on taxable income up to $12,400; 12% on income over $12,400; 22% over $50,400; 24% over $105,700; 32% over $201,775; 35% over $256,225; and 37% over $640,600. The standard deduction — the amount of income exempt from federal tax before brackets apply — is $16,100 for single filers and $32,200 for married couples filing jointly in 2026.
Your employer does not know your final tax bill; instead, it estimates your annual tax and withholds a proportional amount each pay period based on the information on your Form W-4. This is why the amount withheld is called withholding, not the tax itself. When you file your return the following spring, your actual tax is calculated; if too much was withheld you get a refund, and if too little was withheld you owe the difference.
The W-4: How Your Withholding Is Set
Form W-4, the Employee's Withholding Certificate, is how you tell your employer how much federal income tax to withhold. It has five steps. Step 1 captures your filing status — Single or Married Filing Separately, Married Filing Jointly, or Head of Household — which determines the withholding table your employer uses. Married Filing Jointly generally produces the lowest withholding; Single the highest.
Step 2 handles multiple jobs: if you hold more than one job, or you are married filing jointly and both spouses work, checking the Step 2(c) box tells the employer to withhold at higher rates so the combined household income is covered. Steps 3 and 4 let you claim dependent credits, report other income, and add extra withholding. Getting the W-4 right matters because it directly controls the size of your paycheck: claim too little and you face a bill (and possibly an underpayment penalty) at tax time; claim too much and you hand the government an interest-free loan you only recover as a refund. The IRS Tax Withholding Estimator walks you through the inputs and suggests W-4 entries to hit the balance you want.
Pre-Tax Deductions: 401(k) and Health Premiums
Some voluntary deductions come out of your pay before taxes are calculated, which lowers your taxable income and therefore your tax. These are among the most valuable levers on your paycheck.
Traditional 401(k) contributions are deducted from gross wages before federal income tax is figured. If you earn $60,000 and contribute 6% ($3,600) to a traditional 401(k), your wages subject to federal income tax drop to $56,400. At a 12% marginal rate that contribution saves roughly $432 in federal income tax in the year you make it. Important caveat: traditional 401(k) contributions reduce income tax but are still subject to Social Security and Medicare taxes — FICA is calculated on your wages before the 401(k) deferral is removed.
Employer-sponsored health insurance premiums paid through a Section 125 cafeteria plan are typically even more favorable: they are excluded from both federal income tax and FICA. That means a pre-tax health premium reduces your Social Security and Medicare tax as well as your income tax, whereas a 401(k) deferral only reduces income tax. Health Savings Account (HSA) and Flexible Spending Account (FSA) contributions made through payroll usually receive the same pre-tax treatment. This is why two employees with identical gross salaries can have noticeably different take-home pay: the one enrolled in a pre-tax health plan and contributing to a 401(k) shows a smaller taxable wage.
Post-Tax Deductions and State Taxes
Not every deduction is pre-tax. Roth 401(k) contributions, wage garnishments, union dues in some cases, and after-tax insurance products are subtracted after taxes are calculated, so they reduce your net pay without lowering your tax bill. Roth contributions trade a tax break today for tax-free withdrawals in retirement.
Most workers also pay state (and sometimes local) income tax, withheld separately from federal tax. Rates and rules vary widely: a handful of states levy no income tax at all, while others use progressive brackets similar to the federal system or a flat rate. Because state tax depends entirely on where you live and work, this guide focuses on the federal deductions that apply nationwide — but remember that state withholding can add several percentage points to your total deductions.
Worked Example: Why Take-Home Is Less Than Salary ÷ 12
Consider a single filer earning $60,000 in 2026 with no pre-tax deductions, ignoring state tax for clarity:
- Gross monthly pay: $60,000 ÷ 12 = $5,000
- Social Security (6.2%): $3,720/year → $310/month
- Medicare (1.45%): $870/year → $72.50/month
- Federal income tax: taxable income = $60,000 − $16,100 standard deduction = $43,900. Tax = 10% × $12,400 ($1,240) + 12% × $31,500 ($3,780) = $5,020/year → about $418/month
Total federal deductions come to roughly $9,610 per year, leaving about $50,390 in net pay — approximately $4,199 per month, not $5,000. That is the answer to "why is my paycheck smaller than my salary divided by 12": FICA takes 7.65% off the top, and federal income tax withholding takes another slice on top of that. Add state income tax and any benefit deductions, and the gap widens further.
Now add a 6% traditional 401(k) contribution ($3,600). Taxable income falls to $40,300, federal income tax drops to about $4,588 (a $432 saving), and $3,600 goes into retirement savings. Your net cash paycheck shrinks — because the 401(k) money is set aside — but your total compensation is working harder, and FICA is still assessed on the full $60,000.
How to Estimate Your Net Pay
You can approximate take-home pay in a few steps: start with gross pay, subtract any pre-tax deductions (401(k), pre-tax health premiums), subtract FICA (7.65% of gross wages, up to the Social Security wage base), estimate federal income tax using the brackets and standard deduction, then subtract state tax and any post-tax deductions. Because the interaction between pre-tax deductions and the progressive brackets is fiddly, most people are better served by a calculator that handles the layering automatically. The Salary Calculator takes your gross figure and deduction elections and returns an estimated net paycheck, and it works whether you think in annual or hourly terms — see our guide on converting between annual salary and hourly rate if your pay is quoted by the hour. Treat any estimate as a planning figure: your actual withholding depends on your exact W-4, benefit elections, and state, and your final tax is settled when you file.