Gross vs Net Pay: How to Read Your US Paycheck
A $75,000 salary does not mean $75,000 to spend. Between your gross pay and the amount that reaches your bank account sit taxes, payroll contributions and benefit deductions. Knowing what each line on your pay stub does is the first step to a budget that actually works.
Key takeaways
- Gross pay is your earnings before any deductions; net pay is what you take home.
- Social Security (6.2% up to $184,500 in 2026) and Medicare (1.45%) apply to almost all wages.
- Pre-tax deductions such as a traditional 401(k) lower your income tax but not your Social Security and Medicare.
- In our example, a $75,000 salary paid every two weeks leaves about $2,178 of each $2,885 paycheck, roughly 75%.
The structure of a pay stub
Every US pay stub follows the same logic:
Net pay = gross pay − pre-tax deductions − taxes − post-tax deductions
- Gross pay: salary or hours × rate, plus overtime, bonuses and commissions for the period.
- Pre-tax deductions: traditional 401(k) or 403(b) contributions, health, dental and vision premiums under a Section 125 plan, HSA and FSA contributions.
- Taxes: federal income tax withholding, Social Security, Medicare, and state and local income tax where they apply.
- Post-tax deductions: Roth 401(k) contributions, some insurance, union dues, wage garnishments.
Payroll taxes (FICA)
For 2026, employees pay:
- Social Security: 6.2% of wages up to $184,500. Earnings above that are not charged.
- Medicare: 1.45% of all wages, plus an extra 0.9% on wages above $200,000 (single).
Your employer pays a matching 6.2% and 1.45% on top of your salary. Traditional 401(k) contributions do not reduce FICA wages; Section 125 health premiums usually do.
Federal income tax withholding
Your employer withholds an estimate of your annual federal income tax from each paycheck, based on the Form W-4 you filed and IRS tables. Withholding is a prepayment: when you file your return, you get a refund if too much was withheld or owe the difference if too little was. The 2026 brackets and standard deduction are explained in US tax brackets: marginal vs effective rate.
State and local tax
State income tax ranges from none at all, in states such as Texas, Florida and Washington, to rates above 10% at high incomes in states such as California. Some cities, including New York City, add their own income tax. This is often the biggest reason two people on the same salary take home different amounts.
A worked example
A single filer in a state with no income tax earns $75,000, paid every two weeks (26 paychecks). They contribute 6% to a traditional 401(k) and pay $80 per paycheck for health insurance through a Section 125 plan.
| Per paycheck | Amount |
|---|---|
| Gross pay ($75,000 ÷ 26) | $2,884.62 |
| 401(k) contribution (6%) | −$173.08 |
| Health insurance (pre-tax) | −$80.00 |
| Social Security (6.2% of $2,804.62) | −$173.89 |
| Medicare (1.45% of $2,804.62) | −$40.67 |
| Federal income tax (estimate) | −$239.32 |
| Net pay | $2,177.66 |
The federal estimate works on an annual basis: $75,000 minus $4,500 of 401(k) contributions, $2,080 of health premiums and the $16,100 standard deduction leaves $52,320 of taxable income. Tax on that is $6,222.40 for the year, or $239.32 per paycheck. Actual withholding depends on your W-4 and the IRS tables, so it will not match exactly.
Notice that the $173 going into the 401(k) only reduced take-home pay by about $135, because it also lowered income tax. Saving for retirement costs less than it looks.
Enter your salary, pay frequency and deductions to estimate your own take-home pay, then test a higher 401(k) percentage.
Using net pay in your budget
- Budget from net pay, never from salary. Lenders use gross income for debt-to-income ratios, but your rent is paid from net pay.
- Watch the three-paycheck months. With biweekly pay, two months a year contain three paydays. Budgeting on two per month turns those into bonus months.
- Compare job offers on net pay. A higher salary in a high-tax state, or with expensive health coverage, can mean less money in your account.
Check your stub once a year
Errors happen: a wrong state, a missed benefit change, or a 401(k) percentage that never updated. Each January, compare a stub with your benefit elections and your W-4, and use the IRS withholding estimator if your refund or bill last year was larger than you would like.
Frequently asked questions
What percentage of gross pay do I take home?
It varies widely with income, state, filing status and deductions. Many middle-income workers keep roughly 70% to 80% of gross pay, but the only reliable figure is one calculated from your own deductions.
Are 401(k) contributions taken before Social Security and Medicare?
No. Traditional 401(k) contributions reduce federal (and most state) income tax, but Social Security and Medicare are still charged on them. Section 125 health premiums, by contrast, usually reduce both.
Why is my first paycheck of the year different?
Common reasons are new benefit premiums, a changed 401(k) percentage, updated withholding tables, or high earners who stopped paying Social Security late in the previous year after reaching the wage base.
How do I change my federal withholding?
Submit a new Form W-4 to your employer. The IRS Tax Withholding Estimator can help you choose the right entries.
Sources
- IRS: Topic 751, Social Security and Medicare withholding rates
- IRS: Tax Withholding Estimator
- Social Security Administration: Contribution and benefit base
This guide is general information to help you understand the numbers. It is not financial, tax or legal advice. Rates, limits and rules change, so check official sources or a qualified adviser before making a decision. Read our full disclaimer.