How to Read Your Paycheck: What Every Deduction Actually Means
Published August 28, 2026
Your pay stub is full of abbreviations and line items that rarely get explained anywhere — FICA, FIT, SIT, and a handful of deductions that quietly shrink your paycheck between your offer letter and your bank account. Here's exactly what each one means, in plain English.
Gross pay
Gross pay is your total earnings before anything is taken out — your annual salary divided across your pay periods, or your hourly rate times the hours you worked. It's the number in your offer letter, and it's always larger than what actually hits your bank account, because every deduction below is calculated as a percentage of it (or a flat amount subtracted from it).
Federal income tax
Federal income tax is withheld based on the information you provided on your W-4 form — your filing status, dependents, and any additional withholding you requested. It's calculated using progressive tax brackets, meaning you only pay each higher rate on the portion of income that falls within that bracket, not on your entire salary. This is the single largest deduction for most earners.
State income tax
Most states also withhold their own income tax, though rates vary enormously — from 0% in states like Texas and Florida to over 9% in states like California. Some states use flat rates, while others use their own progressive brackets. If you live and work in different states, you may see withholding for both, or a reciprocity arrangement that simplifies it to just one.
Social Security (FICA)
Social Security is a flat 6.2% of your wages, withheld up to an annual wage base ($184,500 in 2026 — earnings above that amount aren't subject to Social Security tax). Your employer matches this 6.2% on their end, so the total contribution going toward your future Social Security benefit is actually double what you see withheld from your own pay.
Medicare (FICA)
Medicare is a flat 1.45% of all your wages, with no wage cap — unlike Social Security, it applies to every dollar you earn. High earners pay an additional 0.9% Medicare surtax above certain income thresholds. Like Social Security, your employer matches the base 1.45% on their end.
401(k) contributions
If you contribute to a workplace retirement plan, you'll see it listed as a percentage of your gross pay, not a dollar amount — for example, 6% means 6% of each paycheck's gross pay, not $6. A traditional 401(k) contribution is deducted before federal (and usually state) tax is calculated, which lowers your taxable income today. The trade-off is that you'll pay income tax on that money when you withdraw it in retirement.
Net pay (take-home pay)
Net pay is everything that's left after federal tax, state tax, Social Security, Medicare, and any pre-tax deductions like your 401(k) or health insurance premium. This is the number that actually deposits into your bank account, and it's typically 20–30% lower than your gross pay — the exact gap depends on your income level, filing status, state, and how much you're contributing to pre-tax benefits.
Tips to increase your take-home pay
A few adjustments can meaningfully change what lands in your bank account. Review your W-4 if you consistently get a large tax refund — that means you're having more withheld than necessary throughout the year, essentially giving the government an interest-free loan. Check whether your employer offers pre-tax benefits like an HSA or FSA, which reduce your taxable income the same way a 401(k) does. And if you're contributing well above any employer match on your 401(k), consider whether that money would serve you better in take-home pay right now versus tax-deferred growth later — there's no universally right answer, but it's worth running the numbers.
Want to see exactly where your own paycheck goes? Enter your salary, state, and deductions into the Paycheck Calculator for a full breakdown of your take-home pay, down to the dollar.