Your paycheck can sometimes feel like a mystery. You earn a certain amount, but what lands in your bank account is often significantly less. This difference is due to various deductions that transform your "gross pay" into your "net pay." Understanding these deductions is crucial for budgeting and financial planning.
What is Gross Pay?
Gross pay is the total amount of money your employer pays you before any taxes or other deductions are taken out. It's your raw earnings, whether based on an hourly wage, an annual salary, or commission. This is the figure often quoted when discussing your salary or hourly rate.
What is Net Pay?
Net pay, also known as take-home pay, is the amount of money you actually receive after all deductions have been subtracted from your gross pay. This is the money that hits your bank account or is given to you as a physical check.
Common Paycheck Deductions Explained
Several types of deductions typically reduce your gross pay to net pay. These can be mandatory (like most taxes) or voluntary (like contributions to retirement plans or health insurance premiums).
1. Federal Income Tax
This is a mandatory tax levied by the U.S. federal government on your earnings. The amount withheld depends on your income, filing status, and the information you provide on your W-4 form. Our calculator uses an estimated percentage for simplicity, as actual federal tax calculation is complex and depends on many factors.
2. State Income Tax
Most states also levy an income tax. The rates and rules vary significantly from state to state, with some states having no state income tax at all. Like federal tax, the amount withheld depends on your income and state-specific withholding forms.
3. Local Income Tax
Some cities, counties, or other local jurisdictions may also impose an income tax. This is less common than federal or state taxes but can be a significant deduction if applicable in your area.
4. Social Security Tax (FICA)
Social Security tax is part of the Federal Insurance Contributions Act (FICA). It funds benefits for retirees, the disabled, and survivors. Employees typically pay 6.2% of their gross wages up to an annual wage base limit (e.g., $168,600 for 2024). Once you earn above this limit in a calendar year, you no longer pay Social Security tax on additional earnings for that year.
5. Medicare Tax (FICA)
Also part of FICA, Medicare tax funds health insurance for individuals aged 65 or older, and for some younger people with disabilities. Employees typically pay 1.45% of all gross wages, with no wage base limit. High-income earners may pay an additional 0.9% Medicare tax on earnings above certain thresholds ($200,000 for single filers, $250,000 for married filing jointly), which is not included in this basic calculator.
6. Pre-Tax Deductions
These are deductions taken from your gross pay *before* income taxes are calculated. This reduces your taxable income, potentially lowering your federal, state, and local income tax liability. Common pre-tax deductions include:
Contributions to a traditional 401(k) or 403(b) retirement plan
Health insurance premiums
Dental and vision insurance premiums
Health Savings Account (HSA) contributions
Flexible Spending Account (FSA) contributions
7. Post-Tax Deductions
These deductions are taken from your pay *after* all taxes have been calculated and withheld. They do not reduce your taxable income. Common post-tax deductions include:
Charitable contributions through payroll deduction
How Our Gross to Net Paycheck Calculator Works
Our calculator helps you estimate your take-home pay by factoring in your gross earnings, pay frequency, and various common deductions. Simply input your gross pay per period, select your pay frequency, and provide estimated percentages for federal, state, and local taxes. Then, add any pre-tax and post-tax deductions to get an estimate of your net pay.
Example Calculation
Let's say you earn a gross pay of $2,000 bi-weekly. You estimate your federal tax withholding at 10%, state tax at 4%, and local tax at 1%. You contribute $100 bi-weekly to your traditional 401(k) (pre-tax) and $20 bi-weekly to union dues (post-tax).
Gross Pay: $2,000
Pay Frequency: Bi-Weekly (26 periods/year)
Annual Gross Pay: $2,000 * 26 = $52,000
Social Security Tax (6.2%): $2,000 * 0.062 = $124.00 (Since $52,000 is below the $168,600 limit)
Medicare Tax (1.45%): $2,000 * 0.0145 = $29.00
Pre-Tax Deductions: $100.00
Taxable Gross Pay: $2,000 – $100 = $1,900
Federal Income Tax (10% of taxable gross): $1,900 * 0.10 = $190.00
State Income Tax (4% of taxable gross): $1,900 * 0.04 = $76.00
Local Income Tax (1% of taxable gross): $1,900 * 0.01 = $19.00