How to Calculate Your Net Pay

Gross Pay vs. Net Pay

Your gross pay is the total amount you earn before any deductions. If your salary is $60,000 per year, your gross pay per paycheck (biweekly) is $2,307.69. Your net pay — often called “take-home pay” — is what actually lands in your bank account after all taxes and deductions are subtracted.

The formula is simple in concept:

Net Pay = Gross Pay − Federal Income Tax − State Income Tax − FICA Taxes − Pre-Tax Deductions − Post-Tax Deductions

In practice, each of these components has its own rules and calculations. For most workers, net pay ends up being roughly 65–80% of gross pay, depending on income level, location, and benefits elections.

Federal Income Tax Withholding

Federal income tax is calculated using a progressive tax bracket system. This means different portions of your income are taxed at different rates — not your entire income at one flat rate. For 2026, the brackets for a single filer are structured so that the first portion of your taxable income is taxed at 10%, the next portion at 12%, then 22%, 24%, 32%, 35%, and 37% for the highest earners.

Your employer uses the information from your W-4 form to determine how much to withhold each pay period. Key factors include your filing status (single, married filing jointly, head of household), the number of dependents you claim, and any additional withholding you request. If you consistently get a large tax refund, you may be over-withholding and could adjust your W-4 to increase your take-home pay throughout the year.

FICA Taxes: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act, and these taxes fund Social Security and Medicare. Unlike income tax, FICA is a flat-rate tax applied to your gross earnings:

• Social Security: 6.2% of your gross pay, up to the annual wage base limit ($168,600 in 2024, adjusted annually for inflation). Once your year-to-date earnings exceed this cap, Social Security tax stops being withheld for the remainder of the year.
• Medicare: 1.45% of all gross pay with no income cap. An additional 0.9% Medicare surtax applies to earnings above $200,000 for single filers ($250,000 for married filing jointly).

Your employer matches your FICA contributions dollar for dollar, so the total going into Social Security and Medicare is actually double what you see deducted from your paycheck. Self-employed individuals must pay both halves (15.3% total) through self-employment tax.

State Income Taxes

Most states impose their own income tax on top of federal taxes. The approach varies significantly:

• No state income tax: Alaska, Florida, Nevada, New Hampshire (dividends/interest only), South Dakota, Tennessee (dividends/interest only), Texas, Washington, and Wyoming.
• Flat tax states: States like Illinois (4.95%), Colorado (4.4%), and Indiana (3.05%) charge a single rate regardless of income.
• Progressive tax states: States like California (1–13.3%), New York (4–10.9%), and New Jersey (1.4–10.75%) use graduated brackets similar to the federal system.

Some cities also levy local income taxes. New York City residents, for example, pay city income tax on top of state and federal taxes, which can bring the combined marginal rate above 50% for high earners.

Pre-Tax Deductions

Pre-tax deductions are subtracted from your gross pay before taxes are calculated, which effectively lowers your taxable income and saves you money:

• 401(k) / 403(b) contributions: Money you contribute to employer-sponsored retirement plans reduces your current taxable income. The 2024 contribution limit is $23,000 ($30,500 if age 50+).
• Health insurance premiums: If your employer offers group health insurance, your share of the premium is typically deducted pre-tax through a Section 125 (cafeteria) plan.
• Health Savings Account (HSA): Contributions to an HSA are pre-tax and can be used for qualified medical expenses. Triple tax advantage: tax-deductible going in, tax-free growth, and tax-free withdrawals for medical costs.
• Flexible Spending Accounts (FSA): Pre-tax money set aside for healthcare or dependent care expenses, though FSAs have “use it or lose it” rules.

Post-Tax Deductions

Post-tax deductions come out of your pay after taxes have been calculated. They do not reduce your taxable income:

• Roth 401(k) contributions: Unlike traditional 401(k), Roth contributions are made with after-tax dollars but grow and can be withdrawn tax-free in retirement.
• Life insurance premiums: Employer-provided coverage above $50,000 is taxed as a benefit, and any additional voluntary coverage premiums are post-tax.
• Wage garnishments: Court-ordered deductions for child support, student loan defaults, or unpaid taxes.
• Union dues: Membership fees for labor unions.

Reading Your Pay Stub

Your pay stub is a detailed record of every component of your pay. Here is what to look for:

• Gross earnings: Your total pay before any deductions, broken down by regular hours, overtime, bonuses, or commissions.
• Taxes: Federal withholding, state withholding, Social Security, Medicare, and any local taxes, each listed separately.
• Deductions: Every pre-tax and post-tax deduction itemized by name and amount.
• Net pay: The final take-home amount after everything is subtracted.
• YTD totals: Year-to-date cumulative figures for each category, which help you track your annual tax liability and verify that your W-2 is accurate at year end.

Review your pay stub at least once per quarter to catch errors. Common mistakes include incorrect tax withholding, benefits deductions continuing after you have cancelled coverage, or missing overtime pay.

Related Calculators

Estimate your take-home pay and explore your tax situation:

• Salary Calculator — Convert between hourly, weekly, biweekly, and annual salary
• Tax Bracket Calculator — See which federal tax brackets apply to your income