Understanding Your Paycheck: Every Line Explained

You earned $5,000 this paycheck. Your bank deposit is $3,200.

Where did $1,800 go?

Most people have no idea what half the deductions on their paycheck actually mean. FICA? OASDI? Pre-tax vs post-tax?

This guide breaks down every single line on your paycheck so you know exactly where your money goes.

Calculate your exact take-home pay →

The Anatomy of a Paycheck

Here's a typical paycheck structure:

EARNINGS
  Gross Pay:                    $5,000.00

TAXES
  Federal Income Tax:           -$650.00
  Social Security (OASDI):      -$310.00
  Medicare:                     -$72.50
  State Income Tax:             -$250.00
  Local Income Tax:             -$50.00

DEDUCTIONS (Pre-Tax)
  401(k) Contribution:          -$500.00
  Health Insurance:             -$200.00
  HSA Contribution:             -$150.00

DEDUCTIONS (Post-Tax)
  Roth 401(k):                  $0.00
  Life Insurance:               -$25.00

NET PAY:                        $2,792.50

In this example:

• Gross: $5,000
• Taxes: $1,332.50 (26.65%)
• Pre-tax deductions: $850 (17%)
• Post-tax deductions: $25 (0.5%)
• Take-home: $2,792.50 (55.85%)

You keep 55.85% of your gross pay.

Let's break down every line.

Part 1: Earnings

Gross Pay

What it is: Your total earnings before any deductions.

How it's calculated:

For salary employees:

• Annual salary ÷ number of pay periods
• Example: $60,000 ÷ 24 (bi-weekly) = $2,500

For hourly employees:

• Hours worked × hourly rate
• Example: 80 hours × $25/hour = $2,000

What's included:

• Regular wages/salary ✓
• Overtime pay ✓
• Bonuses ✓
• Commissions ✓
• Tips (if reported) ✓

What's NOT included:

• Reimbursed expenses (mileage, meals)
• Workers comp benefits
• Certain fringe benefits

Regular Earnings vs Overtime

Regular earnings:

• First 40 hours/week (usually)
• Paid at regular rate

Overtime earnings (OT):

• Hours over 40/week (for non-exempt employees)
• Paid at 1.5× regular rate ("time and a half")
• Some states require OT for hours over 8/day (CA)

Example:

• Regular rate: $20/hour
• Hours worked: 50 (40 regular + 10 OT)
• Regular pay: 40 × $20 = $800
• OT pay: 10 × $30 = $300
• Gross: $1,100

Other Earnings

Bonus:

• Separate from regular wages
• Often taxed at higher rate (22% federal supplemental rate)

Commission:

• Sales-based compensation
• May be only income or in addition to base

Tips:

• If reported, included in gross
• Employer must withhold taxes on reported tips

Part 2: Federal Taxes

Federal Income Tax Withholding

What it is: Federal income tax withheld from each paycheck based on your W-4 form.

How much:

• Depends on your W-4 selections
• More allowances = less withholding
• Fewer allowances = more withholding

2025 Federal Tax Brackets (Single):

Income Range	Tax Rate
$0 - $11,600	10%
$11,601 - $47,150	12%
$47,151 - $100,525	22%
$100,526 - $191,950	24%
$191,951 - $243,725	32%
$243,726 - $609,350	35%
$609,351+	37%

Important: Withholding is an ESTIMATE. You settle up when filing your tax return.

Example:

• Gross pay: $5,000/month
• Annual income: $60,000
• Estimated federal tax: ~$7,200/year
• Per paycheck: $600 (if monthly) or $300 (if bi-weekly)

What affects withholding:

• Filing status (single, married, head of household)
• Number of dependents
• Additional income
• Deductions/credits claimed
• Extra withholding requested

Calculate your exact federal tax →

Social Security Tax (OASDI)

What OASDI means: Old-Age, Survivors, and Disability Insurance

Rate: 6.2% of gross wages (employee portion)

Your employer also pays: 6.2% (total: 12.4%)

Wage limit: $168,600 (2025)

• Once you earn $168,600 in a year, no more SS tax
• Resets January 1

Example:

• Gross pay: $5,000
• SS tax: $5,000 × 6.2% = $310

Example (high earner):

• Salary: $200,000/year
• SS taxed on first: $168,600
• SS tax: $168,600 × 6.2% = $10,453.20
• Income over $168,600: NO SS tax

What it funds:

• Retirement benefits (you'll collect Social Security)
• Disability benefits
• Survivor benefits for families

Medicare Tax

Rate: 1.45% of ALL wages (no limit)

Your employer also pays: 1.45% (total: 2.9%)

Additional Medicare Tax: 0.9% on wages over $200,000 (single) or $250,000 (married filing jointly)

Example:

• Gross pay: $5,000
• Medicare tax: $5,000 × 1.45% = $72.50

Example (high earner):

• Gross pay: $20,000/month
• First $200,000: 1.45% = $2,900
• Amount over $200,000: $40,000 × 2.35% = $940
• Total Medicare tax: $3,840/year

FICA (Federal Insurance Contributions Act)

What it is: Combined Social Security + Medicare

Total FICA rate: 7.65%

• Social Security: 6.2%
• Medicare: 1.45%

On paycheck, may show as:

• "FICA" (combined)
• Or separate lines for "OASDI" and "Medicare"

Example:

• Gross: $5,000
• FICA: $5,000 × 7.65% = $382.50

For self-employed:

• Pay BOTH employee and employer portions
• Total: 15.3% (ouch!)
• But get to deduct half as business expense

Part 3: State and Local Taxes

State Income Tax

What it is: State income tax withheld based on state W-4

Rate: Varies dramatically by state

States with NO income tax (0%):

• Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming

Low-tax states:

• North Dakota: 2.9%
• Indiana: 3.05%
• Pennsylvania: 3.07%
• Arizona: 2.5%

High-tax states:

• California: up to 13.3%
• New York: up to 10.9%
• New Jersey: up to 10.75%
• Hawaii: up to 11%

Example (California):

• Gross: $5,000/month ($60,000/year)
• CA state tax: ~$2,500/year
• Per paycheck: ~$208 (monthly) or $96 (bi-weekly)

Example (Texas):

• Gross: $5,000/month
• TX state tax: $0

Compare states for your salary →

Local Income Tax

What it is: City or county income tax (only in some locations)

States with local income taxes:

• Ohio: Cincinnati (2.1%), Cleveland (2.5%), Columbus (2.5%)
• Pennsylvania: Philadelphia (3.75%), Pittsburgh (3%)
• New York: NYC (3.876%)
• Indiana: Marion County/Indianapolis (2.02%)
• Maryland: Baltimore (3.2%)
• Kentucky: Louisville (2.2%)
• Michigan: Detroit (2.4%)

Example (NYC):

• Gross: $5,000/month
• NYC tax: $5,000 × 3.876% = $193.80
• Plus NY state tax: ~$300
• Total state + local: ~$494

Example (most other cities):

• Local tax: $0

State Disability Insurance (SDI)

States with SDI:

• California: 1.1% (max ~$1,500/year)
• New York: 0.5% (max ~$400/year)
• New Jersey: Employee pays 0.14-0.47%
• Rhode Island: 1.1%
• Hawaii: Employer pays (not on employee paycheck)

What it covers:

• Short-term disability due to non-work injury/illness
• Pregnancy/maternity leave
• Serious health conditions

Example (California):

• Gross: $5,000
• CA SDI: $5,000 × 1.1% = $55

Part 4: Pre-Tax Deductions

What "pre-tax" means: Deducted from gross pay BEFORE calculating taxes.

Why it matters: Reduces taxable income = lower taxes

401(k) Contributions (Traditional)

What it is: Retirement savings through employer plan

Pre-tax benefit: Reduces current taxable income

Limits (2025):

• Employee contribution: $23,000/year
• Age 50+: $30,500 (includes $7,500 catch-up)

Example:

• Gross: $5,000
• 401(k) contribution: $500 (10%)
• Taxable income: $4,500 (not $5,000)
• Tax savings: ~$100-150 per paycheck

Matching:

• Many employers match (e.g., 50% of first 6%)
• Gross: $5,000, you contribute $300 (6%)
• Employer adds: $150 (50% match)
• Total retirement contribution: $450

Health Insurance Premiums

What it is: Your portion of health insurance cost

Employer coverage:

• Employer pays most of the premium
• You pay a portion (depends on plan)

Typical employee cost:

• Individual: $100-300/month
• Family: $400-800/month

Pre-tax benefit:

• Gross: $5,000
• Health insurance: $200
• Taxable income: $4,800
• Tax savings: ~$50-70

HSA (Health Savings Account)

What it is: Savings account for medical expenses (requires high-deductible health plan)

Triple tax advantage:

1. Contributions are pre-tax
2. Growth is tax-free
3. Withdrawals for medical expenses are tax-free

Limits (2025):

• Individual: $4,150
• Family: $8,300
• Age 55+: Add $1,000

Example:

• Gross: $5,000
• HSA contribution: $150
• Taxable income: $4,850
• Tax savings: ~$40-50

Pro tip: Max out your HSA. It's the best tax-advantaged account available.

FSA (Flexible Spending Account)

What it is: Use-it-or-lose-it account for medical expenses

Types:

• Healthcare FSA: $3,200 limit (2025)
• Dependent Care FSA: $5,000 limit

Pre-tax benefit:

• Gross: $5,000
• FSA contribution: $100
• Taxable income: $4,900
• Tax savings: ~$25-35

Warning: Must use funds by end of year or lose them (some plans allow $610 carryover or 2.5 month grace period).

Dental and Vision Insurance

What it is: Separate insurance for dental and vision care

Typical cost:

• Dental: $15-50/month
• Vision: $5-15/month

Usually pre-tax

Commuter Benefits

What it is: Pre-tax deduction for commuting costs

Limits (2025):

• Transit passes: $315/month
• Parking: $315/month

Example:

• Monthly subway pass: $150
• Paid with pre-tax dollars
• Tax savings: ~$40/month

Part 5: Post-Tax Deductions

What "post-tax" means: Deducted AFTER taxes are calculated. No tax benefit.

Roth 401(k) Contributions

What it is: Retirement savings, but with after-tax dollars

Difference from traditional 401(k):

• Traditional: Pre-tax now, taxed in retirement
• Roth: Taxed now, tax-free in retirement

Same contribution limits: $23,000/year (2025)

When Roth makes sense:

• You're young (in lower tax bracket now)
• You expect higher taxes in retirement
• You want tax diversification

Life Insurance Premiums

What it is: Employer-provided life insurance over $50,000

First $50,000: Tax-free benefit Amount over $50,000: Taxable (shows on paycheck)

Example:

• $100,000 coverage
• $50,000 is tax-free benefit
• $50,000 is taxable (adds ~$10-25/month to paycheck)

Union Dues

What it is: Membership dues for labor union

Typically: $20-100/month

Post-tax (no longer deductible federally since 2018)

Charitable Contributions

What it is: Payroll deductions for charity

Tax treatment:

• Post-tax from paycheck
• But deductible on tax return if you itemize

Garnishments

What they are: Court-ordered deductions from paycheck

Types:

• Child support
• Spousal support (alimony)
• Tax levies (IRS, state)
• Student loan default
• Creditor judgments

Limits:

• Federal law limits most garnishments to 25% of disposable income
• Child support can be up to 50-65%

Post-tax deduction

Part 6: Net Pay

Net Pay (Take-Home Pay)

What it is: What actually goes into your bank account

Calculation:

Gross Pay
- Federal Income Tax
- FICA (Social Security + Medicare)
- State Income Tax
- Local Income Tax
- Pre-Tax Deductions
- Post-Tax Deductions
= Net Pay

Common question: "Why is my net pay only 60-70% of gross?"

Answer: Because of taxes (25-35%) plus deductions (5-15%).

See your exact take-home →

Real Paycheck Examples

Example 1: Entry-Level Worker ($40,000/year)

Location: Texas (no state income tax) Pay frequency: Bi-weekly (26 paychecks/year) Gross per paycheck: $1,538.46

GROSS PAY:                      $1,538.46

TAXES:
  Federal Income Tax:            -$110.00
  Social Security (6.2%):         -$95.38
  Medicare (1.45%):               -$22.31
  State Tax:                        $0.00
  Total Taxes:                   -$227.69 (14.8%)

DEDUCTIONS:
  401(k) (6%):                    -$92.31
  Health Insurance:               -$100.00
  Total Deductions:              -$192.31 (12.5%)

NET PAY:                        $1,118.46 (72.7%)

Annual take-home: $29,079

Example 2: Mid-Career Professional ($100,000/year)

Location: California Pay frequency: Bi-weekly Gross per paycheck: $3,846.15

GROSS PAY:                      $3,846.15

TAXES:
  Federal Income Tax:            -$580.00
  Social Security (6.2%):        -$238.46
  Medicare (1.45%):               -$55.77
  CA State Tax:                  -$285.00
  CA SDI (1.1%):                  -$42.31
  Total Taxes:                 -$1,201.54 (31.2%)

DEDUCTIONS (Pre-Tax):
  401(k) (10%):                  -$384.62
  Health Insurance:              -$200.00
  HSA:                           -$159.62
  Total Pre-Tax:                 -$744.24 (19.4%)

DEDUCTIONS (Post-Tax):
  Life Insurance:                 -$20.00

NET PAY:                        $1,880.37 (48.9%)

Annual take-home: $48,890

Key insight: Even with $100K salary, take-home is under $50K after taxes and retirement savings.

Example 3: High Earner ($250,000/year)

Location: New York City Pay frequency: Bi-weekly Gross per paycheck: $9,615.38

GROSS PAY:                      $9,615.38

TAXES:
  Federal Income Tax:          -$2,100.00
  Social Security (6.2%):        -$596.15 (until wage base)
  Medicare (1.45%):              -$139.42
  Additional Medicare (0.9%):     -$19.23 (over $200K)
  NY State Tax:                  -$750.00
  NYC Tax:                       -$373.00
  Total Taxes:                 -$3,977.80 (41.4%)

DEDUCTIONS (Pre-Tax):
  401(k) (max):                  -$884.62
  Health Insurance (family):     -$600.00
  HSA (max):                     -$319.23
  Total Pre-Tax:               -$1,803.85 (18.8%)

NET PAY:                        $3,833.73 (39.9%)

Annual take-home: $99,677

Key insight: $250K salary → $100K take-home (40%). Taxes take 41%, retirement takes 19%.

How to Read Your Paystub

Key Information

1. Pay period:

• Start date and end date
• Pay date (when you get paid)

2. Year-to-date (YTD):

• Total earnings YTD
• Total taxes paid YTD
• Total deductions YTD
• Important for tracking annual limits (Social Security cap, 401k limit, HSA limit)

3. Hours (hourly employees):

• Regular hours
• Overtime hours
• PTO/vacation hours used

4. Leave balances:

• Vacation/PTO remaining
• Sick leave remaining

Red Flags to Watch For

1. Federal withholding is $0 or very low:

• You may owe taxes in April
• Review your W-4

2. No 401(k) contribution but you enrolled:

• Check with HR
• You might be missing employer match

3. Negative net pay:

• Can happen when taking unpaid leave
• Or if deductions exceed gross

4. Social Security tax after hitting $168,600:

• Employer error
• Request refund

5. Different gross than expected:

• Check hours worked
• Verify salary calculation
• Look for unpaid time off

Common Paycheck Questions

Q: Why is my bonus taxed at a higher rate?

A: Bonuses use the "supplemental wage" method:

• Federal withholding: Flat 22% (or 37% if over $1 million)
• Looks like higher tax, but you settle up when filing tax return
• If you're actually in the 12% bracket, you'll get refund in April

Q: Why did my withholding change when I got a raise?

A: Your employer recalculates withholding based on new salary:

• Higher salary → higher tax bracket
• More withheld per paycheck
• This is normal and correct

Q: Can I change my withholding?

A: Yes. Submit new W-4 to employer anytime:

• Want bigger refund? → Withhold more (lower allowances)
• Want bigger paycheck now? → Withhold less (higher allowances)
• Warning: If you under-withhold, you'll owe taxes + possible penalty

Q: What's the difference between gross and taxable wages?

A:

• Gross wages: Total earnings before anything
• Taxable wages: Gross minus pre-tax deductions
• Taxable wages is what appears on your W-2 Box 1

Q: Do I pay taxes on my employer's 401(k) match?

A: Not now. The match goes into your 401(k) tax-deferred:

• No current income
• You'll pay tax when you withdraw in retirement

Q: Why is my first paycheck smaller?

A: Several reasons:

• Partial pay period (started mid-period)
• Benefits deductions (full month taken from first check)
• One-time deductions (background check, uniforms)

How to Increase Your Take-Home Pay

Strategy 1: Adjust W-4 Withholding

If you always get a big refund:

• You're over-withholding
• Update W-4 to withhold less
• Get that money in each paycheck instead

How to update:

• Use IRS Tax Withholding Estimator
• Submit new W-4 to employer
• See change in 1-2 paychecks

Example:

• Currently withhold $700/month federal
• Should withhold $550/month
• Extra $150/paycheck

Strategy 2: Max Pre-Tax Deductions

Pre-tax deductions reduce taxes:

• 401(k): Every $100 saves $25-40 in taxes
• HSA: Every $100 saves $25-40 in taxes
• FSA: Every $100 saves $25-40 in taxes

Example:

• Contribute $500 to 401(k)
• Reduces taxable income by $500
• Saves $125-175 in taxes
• Net cost: Only $325-375

Strategy 3: Move to Low-Tax State

Biggest impact:

• California ($100K) → Texas ($100K)
• CA state tax: ~$4,500/year
• TX state tax: $0
• Save $375/month

Compare states →

Strategy 4: Maximize Employer Benefits

Free money:

• 401(k) match (contribute enough to get full match)
• HSA employer contribution (some employers contribute)
• FSA employer contribution (rare but exists)
• Commuter benefits (up to $315/month pre-tax)

Tools and Resources

Calculate Your Take-Home

Use our calculator:

• Enter gross salary
• Select state
• See exact take-home
• Calculate now →

IRS Resources

W-4 Withholding Estimator:

• https://www.irs.gov/individuals/tax-withholding-estimator
• Calculate correct withholding
• Avoid under/over-withholding

Publication 15-T:

• Employer withholding tables
• See how withholding is calculated

Paycheck Calculators

ADP Paycheck Calculator Paychex Calculator SmartAsset Paycheck Calculator

Conclusion

Your paycheck breakdown:

✅ Gross pay: What you earned ✅ Federal tax: 10-37% depending on income ✅ FICA: 7.65% (SS 6.2% + Medicare 1.45%) ✅ State tax: 0-13.3% depending on state ✅ Pre-tax deductions: 401(k), health insurance, HSA ✅ Post-tax deductions: Roth 401(k), life insurance, garnishments ✅ Net pay: What hits your bank account

Typical take-home rates:

• $40K salary: 70-75% (low tax bracket, fewer deductions)
• $100K salary: 60-65% (higher taxes, more retirement savings)
• $250K salary: 50-55% (top brackets, maxed deductions)

Key actions:

1. Review your paystub monthly - Check for errors
2. Understand your deductions - Know what you're paying for
3. Optimize your W-4 - Don't give IRS interest-free loan
4. Max employer match - Free money
5. Use pre-tax benefits - HSA, FSA, 401(k), commuter

Next step: Use our calculator to see your exact take-home pay and optimize your withholding.

Remember: Understanding your paycheck is the first step to financial control. Once you know where every dollar goes, you can make informed decisions about taxes, deductions, and savings.

Calculate your take-home now →