How to read your paycheck

A paycheck has about a dozen line items on it and most people only look at the bottom number. That’s how you end up surprised at tax time, or missing that HR is deducting too much for your health plan, or under-contributing to your 401(k) without knowing. This guide walks through every line on a typical US pay stub, what’s fixed vs adjustable, and how to spot the three most common errors.

Gross vs net — the basic structure

Gross pay is what you earn before any deductions. Salary ÷ pay periods, or hourly rate × hours worked. This is what your offer letter advertised.

Net pay is what lands in your bank account. Gross pay minus taxes minus pre-tax benefits minus post-tax deductions. Almost everyone nets 60–75% of gross depending on state and benefit load.

Pre-tax deductions (reduce your taxable income)

These come out before federal income tax is calculated, so they also reduce your tax bill:

401(k) / 403(b) contributions. Up to $23,000/year (2024–25, more if 50+). Every $1,000 you contribute saves about $220–$350 in federal tax at typical middle-class rates.

Traditional IRA contributions (if deducted via payroll) — same mechanic. Roth IRAs are post-tax.

Health insurance premium. Most employer health plans are pre-tax. Typical family premium: $150–$400/paycheck.

HSA / FSA contributions if you have a HDHP. HSAs are triple-tax-advantaged — best deal in the US tax code, fund it fully if eligible.

Commuter benefits, dependent care FSA, etc. Less common but pre-tax.

Tax line items

Federal income tax withholding. Based on what you put on your W-4. The form looks confusing but the basic version is: married-filing-jointly with no other income? Fill out just name/SSN/signature. Anything more complex needs the worksheet or IRS withholding estimator.

Social Security (FICA): 6.2% up to the annual cap ($168,600 in 2024). Non-negotiable, everyone pays the same rate.

Medicare: 1.45% with no cap. An additional 0.9% kicks in above $200k single / $250k joint.

State income tax withholding. Varies wildly — 0% in TX/FL/WA/NV/SD/WY/AK/TN/NH, up to ~13% top marginal in CA.

Local / city tax. NYC, Philadelphia, San Francisco, and many Ohio/Pennsylvania cities have their own income tax on top.

State disability insurance (SDI) in CA/NY/NJ/RI/HI only. Usually 0.5–1% of gross.

Post-tax deductions (after federal tax is calculated)

Roth 401(k) / Roth IRA contributions — taxes paid now, withdrawals tax-free later.

Supplemental life insurance, critical illness, pet insurance. Usually small.

Garnishments — child support, student loan default, IRS collection — legally required, take precedence over anything voluntary.

ESPP (employee stock purchase plan). Up to 15% of gross, bought at a discount, a good deal at most companies. Post-tax.

The three most common pay-stub errors

(1) Wrong state withholding. If you moved mid-year or work remote in a different state than you live, HR sometimes withholds in the wrong state. You’ll see it on line 17 of your W-2 next January. Catch it early by verifying the state code on each paystub.

(2) Missing 401(k) match. Check the employer match line. If your company matches 3–6% and it’s not appearing, HR configured something wrong. Match is free money — worth a 5-minute email.

(3) Incorrect withholding from W-4. The new W-4 form (2020+) is confusing. A common error: not accounting for a working spouse, causing massive under-withholding. Run the IRS withholding estimator once a year.

The year-to-date (YTD) columns

Every paystub shows year-to-date totals alongside this-period. These help you answer:

Am I on track to hit the 401(k) limit? YTD contributions × (52 / pay periods elapsed) = projected annual. Compare to the $23,000 limit.

Have I hit the Social Security cap? Once YTD gross crosses $168,600, SS withholding drops to zero for the rest of the year — your net pay goes up by 6.2%. Nice surprise in November/December for high earners.

Is my federal withholding on pace? YTD federal ÷ YTD gross should roughly match your effective tax rate. If it’s way under, you’ll owe at tax time. Way over = big refund, which means you loaned the government money interest-free.

The net-check math for a real paycheck

Single, $80,000 salary, biweekly (26 checks), contributing 10% to 401(k), $150 health premium, California.

Gross/check: $3,077. 401(k): −$308. Health: −$150. Taxable: $2,619. Federal withholding: ~$290. FICA: $191 + $45 = $236. CA income tax: ~$105. SDI: $15. Net: $1,973/check (~64% of gross).

Run yours

Plug your salary + state + 401(k) percent into the paycheck calculator to estimate net pay per check. Cross-check with the hourly rate calculator if you want to sanity-check what an hourly job pays in annual take-home terms, and pair with the budget calculator once you know your real net — budgeting against gross is the most common way to feel mysteriously broke every month.