How to Read Your Paycheck: Gross Pay to Net Pay
Gross pay: the number everything starts from
Gross pay is what you earned before anything comes out: hours times rate, plus overtime, shift differentials and any bonus paid that period. For salaried workers it is the annual salary divided by the number of pay periods: 52 if you are paid weekly, 26 biweekly, 24 semimonthly and 12 monthly. A $60,000 salary paid every two weeks is $2,307.69 gross per check. The hourly to salary calculator converts between the two, and the overtime pay calculator checks the premium on a long week.
Pre-tax deductions: 401(k) versus Section 125 benefits
The next block is money taken out before taxes are figured, and there are two kinds taxed differently.
- Traditional 401(k) and similar retirement deferrals lower the wages your federal income tax (and in most states, your state income tax) is figured on, but not your Social Security or Medicare wages. The 2026 employee limit is $24,500.
- Section 125 "cafeteria plan" items, which is how most employers run health, dental and vision premiums, FSAs and payroll HSA contributions, lower income tax wages and Social Security and Medicare wages. A dollar put here saves you 7.65% of payroll tax on top of the income tax.
Most states follow the federal treatment, but not all; Pennsylvania, for one, taxes 401(k) contributions. This split is why your W-2 shows different wages in box 1 (federal taxable, after both kinds), box 3 (Social Security, after Section 125 items only, capped at the wage base) and box 5 (Medicare).
Federal withholding: what your W-4 tells payroll
Federal income tax withholding is not a flat percentage. Payroll projects your taxable wages for the period to a full year, runs the total through the IRS tables in Publication 15-T, and divides the result by your pay periods. The tables are built around the standard deduction and the brackets, so for a single filer with one job, a year of withholding lands close to the actual tax on wages minus the $16,100 standard deduction ($32,200 married filing jointly, $24,150 head of household in 2026).
What moves the number is your Form W-4. Since the 2020 redesign there are no "allowances." Step 1 sets your filing status. Step 2 flags a second job or a working spouse, so the two jobs do not both assume the full standard deduction. Step 3 is where you claim dependents: the $2,200 child tax credit per qualifying child under 17 in 2026, and $500 for other dependents, which lowers withholding by that amount spread over the year. Step 4 adds other income, extra deductions or a flat extra amount per check. If too little or too much is coming out, the W-4 is the lever. Bonuses paid separately are usually withheld at a flat 22% for federal income tax, which is why a bonus check looks thin.
Social Security, Medicare, state and local tax
Social Security is 6.2% of wages up to the 2026 wage base of $184,500, after which the line disappears until January. Medicare is 1.45% with no cap, and once your wages for the year pass $200,000 your employer must withhold an extra 0.9% whatever your filing status (the $250,000 threshold for couples filing jointly is settled on your return). Your employer pays a matching 7.65% that never appears on your stub.
State income tax depends on where you work and live. Nine states tax no wages at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Some states use one flat rate (Indiana 2.95% for 2026, Illinois 4.95%, Pennsylvania 3.07%); others, such as California and New York, use graduated brackets like the federal system. A few states also run payroll programs (California SDI, Washington paid leave) with their own lines.
Local income tax is a real line in some places: every Indiana county (Lake County is 1.5%), Maryland counties, New York City and Yonkers, Philadelphia and most Pennsylvania municipalities, many Ohio cities, and some Kentucky and Michigan cities. The take-home pay calculator covers every state and lets you enter a local rate.
After-tax deductions and the year-to-date columns
Anything taken out after taxes gives no tax savings now: Roth 401(k) contributions (taxed now, tax-free later), union dues, after-tax life or disability premiums and garnishments. Ordinary creditor garnishments are federally capped at 25% of disposable earnings (less if you earn little); child support and tax levies can take more. What is left after all of this is your net pay.
The year-to-date columns are not decoration. They show when you will hit the Social Security wage base or the 401(k) limit, they catch a deduction that quietly doubled in March, and in January they should match your W-2 box for box. If YTD federal withholding looks low against what you expect to owe, fix the W-4 now, not in April. The IRS Tax Withholding Estimator will tell you what to put on it.
A worked example, and why your stub will not match a calculator
Take a single worker in Texas earning $60,000, paid every two weeks, with no pre-tax deductions and a plain W-4. Annual taxable wages are $60,000 − $16,100 = $43,900. Using the 2026 single brackets, the first $12,400 is taxed at 10% ($1,240) and the remaining $31,500 at 12% ($3,780), so federal income tax for the year is about $5,020, or $193 per check.
| Line | Per check | How |
|---|---|---|
| Gross pay | $2,307.69 | $60,000 ÷ 26 |
| Social Security | −$143.08 | 6.2% |
| Medicare | −$33.46 | 1.45% |
| Federal withholding | −$193.08 (approx.) | $5,020 ÷ 26 |
| State income tax | $0 | Texas |
| Net pay | about $1,938 |
Your real stub will be a few dollars off because the withholding tables round in steps. The bigger reason a stub differs from an online estimate is that withholding is a guess at your tax made one pay period at a time, while a calculator estimates the year's actual liability and spreads it evenly. A second job, a mid-year raise, a bonus withheld at 22%, or a W-4 that still has last year's dependents on it all push the two apart, and the gap is what comes back as a refund or goes out as a payment when you file. Every figure here is an estimate; for anything beyond a plain paycheck, talk to a tax professional. PayForge runs the same 2026 rules for all 50 states on your phone, so you can check a stub in the break room.
Step by step
- Check gross payConfirm hours times rate, or salary divided by pay periods (26 if biweekly), plus any overtime or bonus paid this period.
- Sort the pre-tax deductionsNote which are 401(k)-type (lower income tax only) and which are Section 125 benefits (lower income tax and Social Security and Medicare).
- Check federal withholding against your W-4Make sure the filing status, the Step 2 multiple-jobs setting and the Step 3 dependents match your life this year.
- Verify Social Security and Medicare6.2% and 1.45% of the FICA wage (gross minus Section 125 items). Social Security stops once you pass $184,500 for the year.
- Check the state and local linesConfirm the state, any county or city tax, and any state payroll program premium.
- Read the year-to-date columnCompare YTD withholding with what you expect to owe and fix the W-4 now if it is off.
Frequently asked questions
Why is federal withholding zero on my paycheck?
If your projected annual wages are below the standard deduction plus the credits claimed on your W-4, the tables withhold nothing. It can also mean the W-4 on file says exempt, or claims large dependents or deductions in Steps 3 and 4. Check the form payroll has.
Does my 401(k) contribution reduce Social Security tax?
No. A traditional 401(k) contribution lowers federal (and most state) income tax wages, but Social Security and Medicare are figured on pay before it. Health premiums and HSA/FSA contributions through a Section 125 plan reduce both.
Why was so much taken out of my bonus?
Supplemental wages paid separately are usually withheld at a flat 22% for federal income tax, plus Social Security, Medicare and state tax. The actual tax is settled on your return, so some of it may come back as a refund.
What should the year-to-date totals match?
In January, YTD taxable wages, Social Security wages, Medicare wages and the taxes withheld should match boxes 1 through 6 of your W-2. If they do not, ask payroll before you file.
Written by TapForge Studios, a one-person Android studio run by a tradesman with a background in electrical, HVAC and life-safety work. Reviewed October 7, 2026. This guide is general information, not engineering, legal or tax advice; the adopted code edition, the manufacturer's instructions and the authority having jurisdiction govern.
Free, no ads, made by one person. If this guide helped, you can support the site.
