Where Does Your Paycheck Actually Go?
Your take-home pay is typically only 65-75% of your gross salary. The rest disappears into federal taxes, state taxes, FICA, and various deductions. Understanding this breakdown is essential for budgeting, optimizing your benefits, and avoiding tax surprises.
The Common Shock
This calculator estimates your net pay after all deductions, helps you understand each component, and shows how benefit elections affect your take-home amount.
Anatomy of Your Paycheck
Your pay stub contains multiple sections. Understanding each helps you verify accuracy and optimize your elections:
| Section | What It Shows | Typical Range |
|---|---|---|
| Gross Pay | Total earnings before any deductions | 100% |
| Federal Tax | Income tax withheld based on W-4 and brackets | 10-25% |
| State Tax | State income tax (varies by state) | 0-10%+ |
| Social Security | 6.2% of wages up to wage base | 6.2% |
| Medicare | 1.45% on all wages (+0.9% over $200K) | 1.45-2.35% |
| Pre-Tax Deductions | 401k, health insurance, HSA, FSA | 5-20% |
| Post-Tax Deductions | Roth 401k, life insurance, union dues | 0-10% |
| Net Pay | Your actual take-home amount | 60-80% |
Sensitivity Analysis: Benefit Impact
See how different benefit elections affect take-home on a $75,000 salary (single, no state tax for simplicity):
| Scenario | 401(k) | Health Ins | HSA | Net Monthly Pay |
|---|---|---|---|---|
| No benefits | 0% | $0 | $0 | $4,650 |
| Basic benefits | 3% | $200 | $0 | $4,200 |
| Recommended | 10% | $300 | $300 | $3,550 |
| Maxed out | 15% | $500 | $300 | $3,100 |
Higher deductions = lower take-home but greater tax savings and retirement security
The Hidden Raise
Federal Tax Withholding
Your federal withholding is calculated based on your W-4 elections and the IRS Publication 15-T withholding tables. Per IRS guidelines, 2025 tax brackets for single filers are:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $11,925 | 10% |
| $11,926 – $48,475 | 12% |
| $48,476 – $103,350 | 22% |
| $103,351 – $197,300 | 24% |
| $197,301 – $250,525 | 32% |
| $250,526 – $626,350 | 35% |
| Over $626,350 | 37% |
Marginal vs. Effective Rate
FICA Taxes (Social Security & Medicare)
FICA taxes fund Social Security and Medicare. Unlike income tax, these are flat percentages with specific rules:
| Tax | Employee Rate | 2025 Limit | Notes |
|---|---|---|---|
| Social Security | 6.2% | $176,100 | Tax stops once you hit wage base |
| Medicare | 1.45% | No limit | Applies to all earnings |
| Additional Medicare | 0.9% | >$200K single | High earners pay extra |
High Earner Bonus
Pre-Tax Deductions: Your Best Friends
Pre-tax deductions reduce your taxable income, saving you money on taxes:
- Traditional 401(k) — up to $23,500 in 2025 (+$7,500 catch-up if 50+)
- Health insurance premiums — often 50-80% employer-subsidized
- HSA contributions — up to $4,300 individual / $8,550 family (triple tax advantage)
- FSA — up to $3,300 for healthcare, $5,000 for dependent care
- Commuter benefits — up to $325/month for transit or parking
The Math of Pre-Tax Savings
States Without Income Tax
Nine states don't tax regular wage income:
- Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming — no income tax
- New Hampshire, Tennessee — no wage tax (NH taxes dividends/interest through 2026)
Total Tax Burden Matters
Optimizing Your Take-Home Pay
- Capture the full employer 401(k) match (it's free money—typically 3-6%)
- Use HSA if you have a high-deductible health plan (triple tax advantage)
- Review W-4 accuracy annually or after life changes
- Understand pre-tax vs Roth trade-offs for your situation
- Maximize FSA for predictable medical or dependent care expenses
- Check for underutilized benefits (commuter, legal, education assistance)
Frequently Asked Questions
Q: Why is my first paycheck smaller than expected?
A: Tax withholding tables assume you earn that amount all year. Partial pay periods can skew the calculation. Also, some deductions (401k, insurance) may have started mid-period. It usually evens out over subsequent pay periods.
Q: What's the difference between gross and net pay?
A: Gross pay is your total earnings before any deductions. Net pay (take-home pay) is what remains after federal/state taxes, FICA, and all benefits deductions. Net pay is typically 65-75% of gross for most employees.
Q: Should I contribute to Traditional or Roth 401(k)?
A: If you expect higher taxes in retirement (early career, low current income), Roth (taxed now) may be better. If you expect lower taxes later (high current income, retiring to low-tax state), Traditional (taxed later) wins. Many split 50/50 for flexibility.
Q: Why did my withholding change mid-year?
A: Common reasons: you crossed into a higher tax bracket after a raise, hit the Social Security wage base ($176,100 in 2025) so SS tax stops, your W-4 was updated, or payroll benefits changed. Review your pay stub to identify the specific change.
Q: Can I adjust how much tax is withheld?
A: Yes! Submit a new W-4 to your employer. Use the IRS Tax Withholding Estimator to determine the right settings. You can claim extra withholding or reduce it—aim to neither owe significantly nor get a large refund.
Q: What happens if my employer over-withholds?
A: You'll receive a refund when you file taxes. However, this means you gave the government an interest-free loan all year. Adjust your W-4 to withhold less and keep more in each paycheck instead.
Q: How do pre-tax deductions save me money?
A: Pre-tax deductions reduce your taxable income before taxes are calculated. A $500/month 401(k) contribution in the 22% bracket saves $110/month in taxes—effectively costing you only $390 while saving the full $500.
Q: What is the Social Security wage base?
A: In 2025, Social Security tax (6.2%) applies only to the first $176,100 of earnings. Once you earn above this amount, SS tax stops being withheld, giving you a mid-year 'raise' if you're a high earner.
This calculator provides estimates based on 2025 federal tax rates and general rules. Actual withholding depends on your specific W-4 elections, employer policies, state/local taxes, and benefit elections. Consult a tax professional for personalized advice.