Gross vs Net Pay: Where Your Paycheck Actually Goes
Gross pay is the full number your job promises you. Net pay is what actually reaches your account after deductions come out. The gap is real: for many workers, net pay lands somewhere around 70 to 80 percent of gross. Knowing where each dollar goes turns a confusing paycheck into a short, predictable list of subtractions.
What is the difference between gross and net pay?
Gross pay is your compensation before any money is removed: salary divided by pay periods, or hours multiplied by your rate. Net pay is what remains after pre-tax deductions, Social Security, Medicare, and income tax withholding are taken out. Gross is the number on your offer letter. Net is the number on your bank statement, usually 20 to 30 percent lower.
What comes out of a paycheck, and in what order?
Deductions happen in a set sequence, and the order changes how much tax you owe. Pre-tax items leave first and shrink the wages that tax is figured on. Then come FICA, federal income tax, and any state or local tax. Post-tax deductions leave last. Walking the paycheck from top to bottom is the clearest way to see it.
- Start with gross pay — your salary for the period, or hours times your hourly rate, before anything is touched.
- Subtract pre-tax deductions — traditional 401(k), most health, dental, and vision premiums, plus any HSA or FSA money. These lower your taxable wages.
- Take out FICA — 6.2% for Social Security and 1.45% for Medicare, calculated on the wages that remain.
- Withhold federal income tax — based on your Form W-4, filing status, and the 2026 tax tables.
- Withhold state and local tax — if your state charges income tax; nine states do not.
- Subtract post-tax deductions — Roth 401(k), union dues, wage garnishments, and similar items.
- What is left is net pay — your take-home amount.
| Line | Example (biweekly) | Running balance |
|---|---|---|
| Gross pay | $2,500.00 | $2,500.00 |
| 401(k) 6% pre-tax | −$150.00 | $2,350.00 |
| Health premium | −$120.00 | $2,230.00 |
| Social Security (6.2%) | −$147.56 | $2,082.44 |
| Medicare (1.45%) | −$34.51 | $2,047.93 |
| Federal withholding | −$210.00 | $1,837.93 |
| Net pay | $1,837.93 |
What is FICA, and how much does it take?
FICA is the combined tax that funds Social Security and Medicare. In 2026 you pay 6.2% for Social Security on wages up to a base of $184,500, plus 1.45% for Medicare on every dollar with no cap. That is 7.65% total for most workers. Your employer pays a matching 7.65%, though you only see your own half on the stub.
How does federal income tax withholding work?
Withholding is your employer's best estimate of the income tax you will owe, spread evenly across the year. It runs off your Form W-4 and the 2026 IRS tables. The 2026 standard deduction ($16,100 for a single filer, $32,200 for joint filers) comes off first, then the seven brackets from 10% to 37% apply, then credits reduce the total.
The key word is estimate. Withholding is not your final bill. When you file your return, the IRS compares what was withheld against what you actually owe. Withhold too much and you get a refund; too little and you write a check. A large refund is not free money, it is a year of overpayment the government held for you interest-free.
Do 401(k) contributions and health premiums lower my taxes?
Yes. Traditional 401(k) contributions and most employer health premiums are pre-tax, so they come out before income tax is calculated and shrink your taxable wages. Put $150 into a traditional 401(k) and your federal taxable wages drop by $150, so the real cost to your paycheck is less than $150 once the tax saving is counted.
The 2026 limit for employee 401(k) deferrals is $24,500, up from $23,500 in 2025. Workers 50 and older can add a catch-up contribution for a $32,500 total, and those between 60 and 63 can go up to $35,750 where the plan allows. Health, dental, and vision premiums paid through a Section 125 plan go further than a 401(k): they lower both your income-tax wages and your FICA wages.
| Deduction type | Lowers income tax? | Lowers FICA? |
|---|---|---|
| Traditional 401(k) | Yes | No |
| Health / dental premiums | Yes | Yes |
| HSA / FSA | Yes | Yes |
| Roth 401(k) | No | No |
Why is my net pay only about 70 to 80 percent of gross?
Three forces stack up: FICA takes 7.65%, federal withholding often runs 8 to 15% for middle incomes, and state tax can add several points more. Together they commonly pull net pay down to 70 to 80 percent of gross. Your own percentage depends on income, filing status, where you live, and how much you route into pre-tax accounts.
Location matters more than most people expect. Nine states charge no broad income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. A worker in Texas keeps a bigger slice than an identical worker in California, purely because the state line is missing. Federal tax and FICA still apply everywhere, so no paycheck escapes them.
Frequently asked questions
What percentage of my paycheck goes to taxes?
For a typical middle-income worker, roughly 20 to 30 percent of gross pay goes to FICA and income tax combined. FICA alone is 7.65%. Federal withholding usually adds 8 to 15%, and state tax can add several more points in states that charge it. Higher earners lose a larger share.
Is FICA the same as federal income tax?
No. FICA funds Social Security and Medicare at a flat 7.65% and is a separate line on your stub. Federal income tax is calculated from your W-4, filing status, and the tax brackets. FICA is not refunded when you file, while over-withheld income tax comes back as a refund.
Why is my take-home pay so much lower than my salary?
Your salary is gross pay. Before you see any of it, pre-tax deductions, Social Security, Medicare, federal withholding, and state tax all come out. Those subtractions typically remove 20 to 30 percent, which is why net pay often lands near 70 to 80 percent of the salary figure.
Do 401(k) contributions lower my taxable income?
Traditional 401(k) contributions do. They come out before income tax is figured, so a $200 contribution reduces your taxable wages by $200. They do not lower your FICA wages, though. Roth 401(k) contributions are made after tax and do not reduce taxable income at all.
Does a raise reduce my take-home percentage?
A raise can lower your take-home percentage slightly, because the new dollars may sit in a higher bracket. It never lowers your take-home dollars. Only the income inside each bracket is taxed at that bracket's rate, so more gross always means more net, just not proportionally.
What deductions come out before taxes?
Traditional 401(k) contributions, most health, dental, and vision premiums, and HSA or FSA money are pre-tax. They leave your paycheck before income tax is calculated, which lowers your taxable wages. Health premiums also lower your FICA wages, while 401(k) deferrals do not.
How much of my paycheck can I expect to keep?
Most workers keep 70 to 80 percent of gross as net pay, though the range is wide. Living in a no-income-tax state, contributing pre-tax, and claiming the right W-4 settings all push the number up. Higher income and higher-tax states push it down.
The paycheck stops being a mystery once you read it as a waterfall: gross at the top, a handful of subtractions, net at the bottom. To see your own number instead of a rule of thumb, enter your salary, state, and deductions into the weekly take-home pay calculator. It walks the same steps shown here and shows exactly what reaches your account each week.