Paycheck deductions
Break down every deduction that shrinks your paycheck before it reaches your bank account.
You accepted a job at $60,000 per year. You do the math: $60,000 / 26 pay periods = $2,307 per biweekly paycheck. Then the first direct deposit arrives for $1,640. That is a gap of $667 per paycheck, nearly $17,000 per year that goes somewhere before reaching your account.
That gap is not a mistake, and it is not unique to you. Everyone earning wages in the United States has income and payroll taxes withheld at the source. Understanding exactly where the money goes is the first step to budgeting around your real income, not the salary number on your offer letter.
Federal income tax is the largest single deduction for most employees. The amount withheld depends on your gross pay, your filing status (single, married filing jointly, etc.), and the elections you made on your W-4 form.
The U.S. uses a progressive federal tax system with seven brackets ranging from 10% to 37%. These brackets are marginal, meaning only the income above each threshold is taxed at the higher rate. A single filer earning $60,000 pays 10% on the first $11,600, then 12% on income between $11,601 and $47,150, then 22% on the remainder.
Your employer uses IRS tax tables to calculate withholding each pay period. The goal is for the total withheld across all paychecks to approximately equal your actual annual tax liability. Most people either get a small refund or owe a small amount when they file.
FICA taxes are separate from income tax and are not affected by your W-4. They apply at flat rates regardless of your filing status: Social Security at 6.2% on income up to $168,600 (2024), and Medicare at 1.45% on all income with no cap.
For a $60,000 salary, that is about $3,720 in Social Security and $870 in Medicare annually, or $175.77 per biweekly paycheck before income tax is calculated. These come off the top and you cannot reduce them through withholding changes.
High earners face an additional Medicare surtax of 0.9% on income above $200,000 (single) or $250,000 (married filing jointly). This is also withheld automatically once your wages cross the threshold in a calendar year.
State income tax varies dramatically depending on where you live. Nine states have no broad state income tax. Others have flat rates around 3 to 5%. Several states, including California, New York, and New Jersey, have progressive systems where top rates exceed 10%.
The difference is concrete. Two people earning $70,000, one in Texas (no income tax) and one in California, will have meaningfully different take-home pay from identical salaries. The Californian can pay an effective state rate of 4 to 6% at that income, translating to $2,800 to $4,200 less per year in take-home.
Some cities also impose local income taxes. New York City, Philadelphia, and several other cities add a few percent on top of state rates for workers who live or work within city limits.
Example: $60,000 salary, single filer, moderate-tax state
Annual gross pay: $60,000 ($2,307.69 per biweekly paycheck)
Federal income tax (estimated): ~$6,800/yr ($261.54/check)
Social Security (6.2%): ~$3,720/yr ($143.08/check)
Medicare (1.45%): ~$870/yr ($33.46/check)
State income tax (~4.5%): ~$2,700/yr ($103.85/check)
Estimated biweekly net pay: ~$1,766 (~$45,910/yr)
That is a 23.5% gap between gross and net, before any voluntary deductions for benefits or retirement contributions.
On top of taxes, many employees elect to contribute to benefits that reduce their paycheck further, but also reduce their taxable income.
Traditional 401(k) contributions are the most common. You contribute pre-tax, which means the contribution comes out before income tax is calculated. A $200/paycheck contribution does not reduce your take-home by $200. It reduces it by roughly $140 to $165 because you are also avoiding the taxes that would have been owed on that amount.
Health insurance premiumsare often deducted pre-tax through an employer's Section 125 plan. If your share of coverage costs $300/month, that $300 comes out before income taxes, reducing your taxable income and softening the actual impact on your net pay.
HSA and FSA contributions work similarly. They reduce taxable income and let you save for healthcare costs with pre-tax dollars.
Some deductions come out after taxes are calculated. These do not reduce your taxable income, but they still reduce your net pay.
Roth 401(k) contributions are post-tax because you pay taxes now in exchange for tax-free growth and withdrawals later. The tradeoff is intentional: you are making a bet that your future tax rate will be higher than it is today.
Wage garnishments for things like child support, unpaid student loans, or court judgments are also post-tax deductions. These come out regardless of your preferences.
Life insurance and supplemental coverage elected above certain employer-provided thresholds are typically post-tax deductions.
Take-Home Pay Calculator
Enter your salary and select your state to estimate your net pay after federal tax, state tax, FICA, and optional deductions.
State Take-Home Pay Calculators
See state-specific estimates for all 50 states and compare how location affects your paycheck.
Your paycheck is reduced by federal income tax withholding, Social Security tax (6.2%), Medicare tax (1.45%), state income tax if applicable, and any voluntary deductions you have elected such as health insurance, 401(k) contributions, or HSA contributions. All of these come out before you receive the remainder.
FICA stands for Federal Insurance Contributions Act. It covers Social Security (6.2% up to $168,600 in 2024) and Medicare (1.45% on all income). These fund the Social Security and Medicare programs. Unlike income tax, you cannot adjust FICA withholding with a W-4.
Your W-4 tells your employer how much federal income tax to withhold. Claiming a lower withholding amount results in less tax taken from each paycheck but a potentially smaller refund or a tax bill at filing time. Claiming extra withholding results in more tax withheld per paycheck but a larger refund.
Yes, pre-tax deductions reduce your paycheck, but they also reduce your taxable income, so you pay less in income taxes. A $500/month traditional 401(k) contribution might only reduce your net pay by $350 to $390 because the other $110 to $150 would have gone to taxes anyway.
Nine states have no broad state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of those states, your take-home pay is noticeably higher than someone in a state with a 5 to 10% income tax at the same gross salary.
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