Understanding Your Paycheck
Your paycheck isn't just your salary divided by pay periods. Taxes, benefits, and deductions all take a cut before you see your take-home pay. Understanding these deductions helps you plan your budget and optimize your finances.
Types of Paycheck Deductions
Pre-Tax Deductions
These reduce your taxable income, lowering your tax bill:
- Traditional 401(k) contributions
- Health insurance premiums
- HSA (Health Savings Account) contributions
- FSA (Flexible Spending Account) contributions
- Commuter benefits
- Dependent care FSA
Pre-Tax Advantage
Taxes
- Federal income tax (based on brackets)
- State income tax (varies by state, some have none)
- Social Security (6.2% up to wage base)
- Medicare (1.45%, plus 0.9% over $200K)
- Local taxes (some cities/counties)
Post-Tax Deductions
These come out after taxes are calculated:
- Roth 401(k) contributions
- Roth IRA (if through payroll)
- Life insurance (above $50K employer-paid)
- Disability insurance (if employee-paid)
- Union dues
- Charitable donations (some employers)
2024 Federal Tax Brackets
Single Filers
| Taxable Income | Tax Rate |
|---|---|
| $0 – $11,600 | 10% |
| $11,601 – $47,150 | 12% |
| $47,151 – $100,525 | 22% |
| $100,526 – $191,950 | 24% |
| $191,951 – $243,725 | 32% |
| $243,726 – $609,350 | 35% |
| Over $609,350 | 37% |
Marginal vs Effective Rate
FICA Taxes Explained
Social Security
- 6.2% of wages up to $168,600 (2024)
- Employer matches 6.2%
- Self-employed pay both halves (12.4%)
- Funds Social Security retirement benefits
Medicare
- 1.45% on all wages (no cap)
- Employer matches 1.45%
- Additional 0.9% on wages over $200K (single)
- Funds Medicare health insurance
States Without Income Tax
These states don't tax regular income:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
- New Hampshire (dividends/interest only)
- Tennessee (phased out income tax)
Other Taxes May Apply
Maximizing Your Take-Home Pay
- Contribute enough to 401(k) to get full employer match
- Use HSA if you have a high-deductible health plan
- Review W-4 withholding accuracy
- Consider pre-tax vs Roth trade-offs
- Look into FSA for dependent care or medical expenses
- Check for commuter benefits if applicable
Don't Over-Withhold
Frequently Asked Questions
Q: Why is my first paycheck smaller than expected?
A: Tax withholding tables assume you earn that amount all year. But partial pay periods can skew the math. It usually evens out over time.
Q: What's the difference between gross and net pay?
A: Gross pay is your total earnings before anything is taken out. Net pay (take-home pay) is what's left after taxes and deductions.
Q: Should I contribute to Traditional or Roth 401(k)?
A: If you expect higher taxes in retirement, Roth (taxed now). If you expect lower taxes later, Traditional (taxed later). Many split contributions.
Q: Why did my withholding change mid-year?
A: Common reasons: you crossed a tax bracket, hit the Social Security wage limit, got a raise, or your W-4 changed.
Q: Can I adjust how much tax is withheld?
A: Yes! Update your W-4 form with your employer. Use the IRS withholding estimator to find the right amount.
Q: What happens if my employer over-withholds?
A: You'll get a refund when you file taxes. To avoid this, adjust your W-4 to withhold less.
Understanding Your Pay Stub
| Section | What It Shows |
|---|---|
| Gross Pay | Total earnings before deductions |
| Federal Tax | Income tax withheld for IRS |
| State Tax | Income tax for your state |
| FICA | Social Security + Medicare |
| Pre-Tax Deductions | 401k, health insurance, HSA |
| Post-Tax Deductions | Roth, life insurance, etc. |
| Net Pay | Your take-home amount |
| YTD Totals | Year-to-date cumulative totals |
This calculator provides estimates based on 2024 tax rates and general rules. Actual withholding depends on your specific W-4, employer policies, and tax situation. Consult a tax professional for personalized advice.