Your first paycheck is exciting. Then you look at the stub and see that $800 of your $1,000 salary somehow became $672 in your bank account. Where did $328 go?
Most people never find out. They glance at the "net pay" number and move on. But every line on that document is a decision — some made by your employer, some by the government, and a few you can actually control. Understanding them takes 10 minutes and can save you real money.
Sample pay stub — $75,000/yr salary, biweekly
Gross pay
The number your employer agreed to pay. Everything else is a percentage of this.
Federal + State tax
Estimate based on your W-4. Reconciled in April — big refund = you overpaid each check.
FICA (SS + Medicare = 7.65%)
Fixed rate, no opt-out. Your employer matches the exact same amount on top.
401(k) — pre-tax, 2026 limit $24,500
If your employer matches and you under-contribute, you leave pay on the table every period.
Health insurance
Your share of the monthly premium. Usually pre-tax — lowers your taxable income.
Net pay — what you keep
$2,884 gross → $1,960 net. 32% of each paycheck went to taxes and benefits.
Gross pay vs. net pay: the two numbers that frame everything
Gross pay vs. net pay: the two numbers that frame everything
Gross pay is your total earnings before any deductions — the number your employer agreed to pay you. If you earn $20/hour and worked 50 hours this pay period, your gross pay is $1,000.
Net pay is what actually lands in your bank account. Also called take-home pay. Everything in between is the story of what happened to your money.
Key insight: Many people negotiate salary based on gross pay without thinking through net pay. A $5,000 raise in a higher tax bracket may net you only $3,200 extra per year — worth knowing before you accept an offer.
The tax lines — required by law
These deductions go to the government. You cannot opt out, but you can influence how much is withheld.
Federal Income Tax Withheld
The portion of your paycheck sent to the IRS on your behalf, based on the W-4 form you filled out when you were hired. This is an estimate — you reconcile with the IRS every April when you file your return. If you got a large refund last year, you're over-withholding and giving the government an interest-free loan. Adjust your W-4 to keep more of each paycheck.
State Income Tax
Works like federal withholding but funds your state government. Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Worth understanding before accepting a job offer in a new state — the difference can be thousands of dollars per year.
Social Security Tax (OASDI)
A flat 6.2% of gross pay, up to a wage base of $184,500 in 2026. Your employer matches this 6.2%, so the total going toward your future benefits is 12.4%. On a $1,000 paycheck, you see $62 withheld.
Medicare Tax
A flat 1.45% of all gross wages — no income cap. Employer matches it. On a $1,000 paycheck, this is $14.50. Small, but it funds health insurance for every American over 65.
Note: Social Security (6.2%) + Medicare (1.45%) = 7.65% of your gross pay every paycheck, no exceptions. This combined deduction is called the FICA tax.
Tax terms like withholding, FICA, gross, and net show up on every personal finance exam. Practice finding them with an interactive word search.
Play: Tax Terms Puzzle →The benefit deductions — some are your choice
Unlike taxes, several benefit deductions are optional — and the right choices here make a real difference.
401(k) Contribution
Your contribution to your employer-sponsored retirement account, taken out before taxes. A $100 contribution only reduces your paycheck by about $78 if you're in the 22% bracket — the government covers the rest through reduced withholding. If your employer matches contributions and you're not contributing enough to capture the full match, you're leaving compensation on the table every pay period.
Health Insurance Premium
Your share of the monthly health plan cost. Most employers cover 70–80% of the premium; you pay the rest. Usually pre-tax, which lowers your taxable income. On a biweekly paycheck, your share of a $600/month plan works out to about $69 per check.
FSA / HSA Contribution
Both accounts let you pay medical expenses with pre-tax dollars. HSAs roll over year to year and can be invested; FSA funds typically expire December 31. Putting $1,500 in an FSA in the 22% bracket saves $330 in taxes on costs you were paying anyway.
The Year-to-Date column
Every good pay stub shows cumulative totals since January 1. This column is underused and genuinely valuable.
| YTD Line | What to check |
|---|---|
| YTD Gross Pay | Verify it matches your salary pace. Biweekly (26 pay periods): multiply this check's gross by 26 and compare to your offer letter. |
| YTD Federal Tax | Divide by YTD gross for your effective withholding rate. Compare to your bracket to catch over- or under-withholding early. |
| YTD 401(k) | Track progress toward the $24,500 IRS limit (2026). Under-contributing early? Raise your percentage mid-year to catch up. |
| YTD Social Security | Once YTD gross hits $184,500, withholding stops. High earners see a small effective pay increase when this happens. |
Teacher note: The YTD column makes an excellent classroom exercise. Give students a fictional mid-year stub and ask them to project the annual figures — multiplication, percentages, and real-world reasoning in one problem.
Your effective tax rate — the number most people never calculate
Add up federal income tax, state income tax, Social Security, and Medicare from your YTD column. Divide by YTD gross. That's your effective tax rate — the actual percentage of your earnings going to taxes.
Most workers find it's 22–30%, not the marginal bracket rate they hear about in the news. The marginal rate only applies to income within that specific bracket — your blended rate across all brackets is lower. Knowing this helps you compare job offers, evaluate raises, and build a budget around what you actually take home.
Budgeting starts with knowing your real take-home pay. Practice income, expenses, savings rate, and surplus vocabulary with this puzzle.
Play: Budgeting Puzzle →What to do if something looks wrong
Payroll errors are more common than most people realize. A quick checklist:
- Hours don't match — Compare to your own records. If you don't track your hours independently, start now.
- Wrong withholding amount — Verify your W-4 was processed correctly, especially after marriage, a new dependent, or a second job.
- Missing benefit deduction — If you enrolled in a 401(k) or HSA and don't see it, contact HR immediately. A missed period means a lost tax deduction you can't recover.
- Employer match not visible — Matches often appear on a separate statement. Confirm with HR that deposits are hitting your account.