How to Read Your Paycheck: Gross Pay, Deductions and Net Pay
In this guide
- Gross pay vs. net pay
- A sample pay stub, line by line
- Taxes on your pay stub
- Pre-tax deductions
- Post-tax deductions
- Other items you might see
- What to check every payday
- Should you adjust your W-4?
- Use your net pay to budget
- Why your paycheck changes during the year
- Frequently asked questions
- Read it once, then check it each payday
You negotiated a $70,000 salary, so why does your first paycheck look so much smaller than $2,692? The answer is on your pay stub, a document most people glance at once and never read again. Understanding it helps you catch payroll errors, plan your budget around real numbers and spot easy ways to keep more of what you earn.
This walkthrough explains every common line on a US pay stub, with a full example, and shows you what to check each payday.
Gross pay vs. net pay
- Gross pay is what you earn before anything is taken out. For a salaried employee, it’s your annual salary divided by the number of pay periods.
- Net pay (take-home pay) is what’s deposited into your bank account after taxes and deductions.
The gap between the two is usually 20–35% for young professionals, depending on your state, benefits and retirement contributions.
A sample pay stub, line by line
Here’s a simplified biweekly pay stub for someone earning $70,000 a year (26 paychecks), contributing 6% to a traditional 401(k), paying $90 per paycheck for health insurance and living in a state with a hypothetical 4% flat income tax.
| Line | Amount | What it is |
|---|---|---|
| Gross pay | $2,692.31 | $70,000 ÷ 26 |
| 401(k) contribution (6%, pre-tax) | −$161.54 | Retirement savings, reduces taxable income |
| Health insurance (pre-tax) | −$90.00 | Your share of the premium |
| Federal income tax withholding | −$209.05 | Estimate of your federal income tax |
| Social Security (6.2%) | −$161.34 | Funds Social Security benefits |
| Medicare (1.45%) | −$37.73 | Funds Medicare |
| State income tax (example 4%) | −$97.63 | Varies by state; some states have none |
| Net pay | $1,935.02 | What lands in your account |
Simplified example for illustration. Actual withholding depends on your W-4, state and local rules, and benefit elections.
In this example, take-home pay is about 72% of gross, but $161.54 of the difference is going into the employee’s own 401(k), not to taxes.
Taxes on your pay stub
Federal income tax withholding
Your employer withholds federal income tax based on the information you gave on Form W-4 and IRS withholding tables. Withholding is an estimate of your annual tax, spread over the year. When you file your tax return, you settle up: if too much was withheld, you get a refund; too little, and you owe.
For how federal rates actually apply to your income, see our explanation of the 2026 federal tax brackets.
FICA: Social Security and Medicare
FICA taxes are flat percentages:
| Tax | Employee rate | Employer pays | 2026 wage limit |
|---|---|---|---|
| Social Security | 6.2% | Another 6.2% | First $184,500 of wages |
| Medicare | 1.45% | Another 1.45% | No limit |
| Additional Medicare | 0.9% | None | Wages above $200,000 (single) |
Note that 401(k) contributions reduce your federal income tax but not FICA taxes. Many pre-tax health insurance premiums (under a cafeteria plan) reduce both.
State and local income taxes
Most states have an income tax, but several, including Texas, Florida, Washington, Nevada and Tennessee, don’t tax wages. Some cities and counties add a local income tax. Some states also require contributions for programs like state disability insurance or paid family leave.
Pre-tax deductions
Pre-tax deductions come out before income tax is calculated, which lowers your tax bill:
- Traditional 401(k) or 403(b) contributions
- Health, dental and vision insurance premiums (usually)
- Health Savings Account (HSA) contributions through payroll, which also avoid FICA tax. See our guide to how an HSA works.
- Flexible Spending Account (FSA) contributions for healthcare or dependent care
- Commuter benefits for transit and parking
Example: Contributing $161.54 per paycheck to a traditional 401(k) reduces taxable income by $4,200 a year. In the 12% federal bracket plus a 4% state tax, that’s roughly $670 less in income tax, so saving $4,200 costs about $3,530 in take-home pay.
Post-tax deductions
These come out after taxes are calculated:
- Roth 401(k) contributions
- Some life or disability insurance premiums
- Union dues
- Wage garnishments, if any
Other items you might see
- Employer contributions: many stubs show your employer’s 401(k) match or HSA contribution. It isn’t deducted from your pay; it’s extra money going into your accounts.
- Year-to-date (YTD) totals: cumulative amounts for the calendar year. Useful for tracking your 401(k) contributions toward the annual limit.
- Paid time off balances: vacation and sick hours available.
- Imputed income: the taxable value of certain benefits, such as group life insurance above $50,000.
- Bonuses: supplemental wages paid separately are often withheld at a flat 22% for federal tax, which can feel high. Any over-withholding is settled when you file.
What to check every payday
- Gross pay is correct, including any overtime, bonuses or raises.
- Your 401(k) percentage matches your election, and the employer match appears if your plan shows it.
- Benefit deductions match your enrollment.
- Filing status and withholding look reasonable. A big change from one stub to the next deserves a question to HR.
- YTD totals add up, especially if you changed jobs this year and need to stay under the 401(k) limit.
Errors happen more often than people think, especially after a raise, a benefits change or a payroll system update.
Should you adjust your W-4?
A large refund means you gave the government an interest-free loan; a large balance due means too little was withheld. Consider updating your W-4 if you:
- Received a big refund or owed money last year
- Started a second job or a side hustle
- Got married or divorced, or had a child
- Have significant deductions or credits
The IRS offers a free Tax Withholding Estimator on its website to help you fill out a new W-4. If you earn side income, read about how side hustle income is taxed.
Use your net pay to budget
Always build your budget around net pay, not salary. In the example above, monthly take-home pay is about $1,935 × 26 ÷ 12 = $4,193. Our step-by-step budgeting guide shows how to turn that number into a plan.
Why your paycheck changes during the year
Many people notice their take-home pay shift even when their salary hasn’t changed. Common reasons:
| What changed | Effect on net pay | What to do |
|---|---|---|
| New benefits year (often January) | Health premiums or plan choices change | Compare your first January stub with December’s |
| You hit the Social Security wage base ($184,500 in 2026) | Net pay rises for the rest of the year because the 6.2% tax stops | Nothing; it resets on January 1 |
| You changed your 401(k) percentage | Net pay falls or rises by the change | Confirm the new percentage is applied |
| Three-paycheck months (biweekly pay) | Some benefit deductions may be skipped in the third check | Treat the extra check as savings |
| Bonus or commission paid | Withholding on supplemental pay is often a flat 22% federal | Any over-withholding is settled when you file |
| You moved states | Different state tax, or none | Update your state withholding form with HR |
| Payroll error | Unexpected change | Contact HR or payroll promptly |
How to keep a simple paycheck log
A five-minute habit catches most problems. Keep a short spreadsheet with one row per paycheck and these columns:
- Pay date
- Gross pay
- 401(k) contribution
- Health and other benefits
- Federal, state and FICA taxes
- Net pay
- Notes (raise, bonus, benefit change)
After a few months, you’ll know exactly what a “normal” paycheck looks like, which makes any change stand out immediately. It also gives you real numbers for your budget instead of guesses.
Pay frequency and your budget
If you’re paid every two weeks, you receive 26 paychecks a year, so two months each year contain three paychecks. Budgeting around two paychecks per month and sending each “extra” paycheck straight to savings or debt is an easy way to make progress without changing your monthly lifestyle.
Frequently asked questions
Why is my first paycheck different from the rest?
The first paycheck may cover a partial pay period, or benefit deductions may start a cycle later. Some employers also deduct two periods of premiums at once to catch up.
Why did my take-home pay go down after a raise?
Usually it doesn’t. If it did, check whether benefit costs rose, your 401(k) percentage applied to a higher salary, or your withholding changed. A raise can’t reduce your take-home pay through tax brackets alone, because higher rates apply only to the additional income.
What’s the difference between withholding and actual tax owed?
Withholding is an estimate collected throughout the year. Your actual tax is calculated on your annual return. The difference becomes your refund or balance due.
Are 401(k) contributions taxed?
Traditional 401(k) contributions aren’t subject to federal income tax when you contribute (you pay it on withdrawal), but they are subject to Social Security and Medicare taxes. Roth 401(k) contributions are taxed now and can come out tax-free later.
How do I increase my take-home pay?
Ask for a raise, adjust your W-4 if you’re over-withholding, or review benefits elections. Reducing retirement contributions does increase take-home pay, but it usually costs you more in the long run, especially if you lose an employer match.
Read it once, then check it each payday
Your pay stub shows how your gross salary becomes take-home pay: pre-tax deductions such as 401(k) contributions and health insurance, federal and state income tax withholding, and FICA taxes. A few minutes each payday is enough to catch errors and confirm that your savings are on track.
Ten minutes today: Pull up your latest pay stub and match each line to the table above. Check that your 401(k) contribution is high enough to get your full employer match, as explained in our guide to how a 401(k) works.