What Gets Subtracted From Your Gross Pay

Your gross pay is what your employer agrees to pay you before anything comes out. Your net pay — the amount that actually lands in your bank account — is gross pay minus taxes and other deductions. The main items that come out are federal income tax, Social Security tax (6.2%), Medicare tax (1.45%), and any state or local income tax your location charges.

Federal income tax is the biggest variable. The amount depends on your W-4 form, which you fill out when you start a job. On that form, you tell your employer how many allowances to claim — the more allowances you claim, the less federal tax comes out of each paycheck. Most people adjust their W-4 to get close to zero refund at tax time, meaning they neither overpay nor underpay across the year.

Some deductions are optional: health insurance premiums, retirement contributions (like a 401k), flexible spending accounts, or union dues. These come out before federal income tax is calculated, which can lower your taxable income. Other deductions like wage garnishments or child support come out after taxes.

Key Takeaways

  • Gross pay minus federal tax, Social Security, Medicare, and state/local taxes equals your net pay, the amount you actually receive.
  • Federal income tax is based on your W-4 form and your pay frequency — the same W-4 produces different dollar amounts on weekly versus monthly paychecks.
  • Pre-tax deductions like health insurance and 401k contributions lower your taxable income and can increase your net pay compared to taking the same amount home after taxes.
  • Your pay stub shows the calculation for every deduction, so you can verify the math matches the tax tables for your state and filing status.

How Federal Income Tax Is Calculated

Federal income tax uses a tax table that depends on three things: your gross pay, your pay frequency (weekly, biweekly, monthly), and the number of allowances on your W-4. The IRS publishes these tables every year. Your employer's payroll system looks up your situation in the table and subtracts that amount.

The table assumes you will receive the same paycheck every period for the whole year. If you earn $1,500 biweekly and claim one allowance, the table calculates federal tax as if you will earn $39,000 annually (26 paychecks × $1,500). The tax withheld from each check is 1/26th of the annual tax on that income.

This is why a bonus or extra paycheck can surprise you: if you get paid biweekly and suddenly receive three paychecks in one month, the third check is taxed at a higher rate because the table thinks you earn more than you actually do. The overage corrects itself when you file your tax return in April.

Calculating Social Security and Medicare Tax

These two taxes are straightforward percentages with no allowances or adjustments. Social Security tax is 6.2% of your gross pay, up to a yearly cap (the cap changes annually — in 2024 it was $168,600). Once you hit that cap, no more Social Security tax comes out for the rest of the year.

Medicare tax is 1.45% of your gross pay with no cap — it comes out of every paycheck all year. If you earn over $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare tax applies to income above that threshold.

To calculate these by hand: multiply your gross pay by 0.062 for Social Security, and by 0.0145 for Medicare. If you earn $2,000 gross biweekly, Social Security is $124 and Medicare is $29.

State and Local Income Tax Variations

Not all states charge income tax. Nine states have no state income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). If you live in one of these states, you skip state income tax entirely.

States that do tax income use different methods. Some use a flat percentage (like Colorado at 4.4%), while others use tax brackets similar to federal tax. A few states also charge local income tax on top of state tax — Ohio, Pennsylvania, and some cities in other states do this. Your pay stub will show each tax separately.

To find your state's tax rate and brackets, search "[your state] income tax rate" or check your state's department of revenue website. If you live in a state with brackets, you will need your gross pay and filing status to look up the correct percentage.

Using Your Pay Stub to Verify the Math

Your pay stub is the official record of how your paycheck was calculated. It lists gross pay at the top, then each deduction with the dollar amount, and net pay at the bottom. Check that the deductions match what you expect: federal tax, Social Security (6.2%), Medicare (1.45%), state tax, and any voluntary deductions you chose.

To verify federal tax, you can use the IRS tax withholding calculator on irs.gov. Plug in your gross pay, pay frequency, and W-4 allowances, and it will tell you what federal tax should be. If your pay stub shows a different amount, contact your payroll department — it could be a setup error or a recent W-4 change that hasn't taken effect yet.

Year-to-date totals on your pay stub show cumulative gross pay and taxes since January 1. These are useful for tracking whether you are on pace to hit the Social Security cap or to estimate your tax refund.

Adjusting Your W-4 to Change Your Withholding

If you consistently get a large refund or owe a big amount at tax time, your W-4 is out of sync with your actual tax situation. You can adjust it anytime by filling out a new W-4 and giving it to your payroll department.

More allowances = less federal tax withheld per paycheck = larger net pay but a smaller refund (or larger bill) at tax time. Fewer allowances = more federal tax withheld = smaller net pay but a larger refund. The goal for most people is to break even: owe nothing and get nothing back.

Life changes trigger W-4 adjustments: getting married, having a child, taking a second job, or a spouse starting work. The IRS tax withholding calculator walks you through these scenarios and tells you what allowances to claim.

Common Mistakes When Calculating Take-Home Pay

The biggest mistake is forgetting that federal tax depends on pay frequency. If you earn $50,000 annually, your biweekly gross is about $1,923, not $4,167 (which would be monthly). Using the wrong frequency in a tax table gives you the wrong withholding amount.

Another common error is assuming net pay is gross minus a flat percentage. Tax is not a straightforward percentage — it uses brackets and allowances, so two people earning the same gross pay can have different net pay depending on their W-4 and state.

Do not forget pre-tax deductions. If you contribute $200 biweekly to a 401k, your taxable income is $1,723, not $1,923. Federal tax is calculated on $1,723, which lowers the amount withheld and increases your net pay compared to taking home $200 after taxes.

Frequently Asked Questions

Why does my paycheck vary if I get paid the same amount every week?

Federal tax withholding can shift if your W-4 changed, if you hit the Social Security cap, or if you received a bonus or extra paycheck that month. Bonuses are often taxed at a higher rate because payroll assumes you earn that much every period. State tax might also change if you moved or your filing status changed.

How do I know if my W-4 is set up correctly?

Use the IRS tax withholding calculator at irs.gov. It asks about your income, dependents, and other jobs, then tells you how many allowances to claim. If your last tax return showed a large refund or a big bill, your current W-4 is off and needs adjustment.

Does overtime change how much tax comes out?

Overtime pay is added to your gross pay and taxed the same way as regular pay. If you work overtime one week, that paycheck's gross is higher, so federal tax is higher. The tax is still based on your W-4 and pay frequency — overtime does not trigger a different tax rate.

What if I have two jobs — do I pay taxes twice?

Each employer withholds federal tax based on your W-4 and their payroll records. If you claim the same allowances at both jobs, you will likely overwithhold because the tax table assumes each job is your only income. Fill out a new W-4 at your second job claiming zero allowances, or use the IRS calculator to split allowances between jobs.

Can I get my taxes back if I overpaid during the year?

Yes — when you file your tax return in April, the IRS compares what you owed to what you paid. If you paid more, you receive a refund. If you paid less, you owe the difference. This is why your W-4 matters: it controls whether you break even, overpay, or underpay across the year.