Gross, Net and Everything Between

The story: Marcus’s smaller check

In a break room, Marcus and a coworker, Ana, follow a paystub line by line from gross pay at the top to take-home pay at the bottom.

1. Narrator: Marcus signed up for benefits at a new job: a health plan and a 401(k). Then the first full paycheck landed.
2. Marcus: I earned $2,000 these two weeks. Why did only about $1,480 land in my account?
3. Ana: Read it top to bottom. Gross pay is what you earned. Then come taxes and your benefit deductions.
4. Narrator: The 401(k) and the health premium come out before income tax is figured, so Marcus pays less income tax.
5. Marcus: So the $100 to my 401(k) didn’t cost me a full $100 of take-home.
6. Narrator: Right. Take-home is the number to budget from, and the stub shows exactly how you got there.

What you’ll learn

1. Gross pay, then taxes

   Gross pay is everything you earned in the pay period. Federal income tax comes out, plus state and local income tax where they exist. Social Security (6.2%) and Medicare (1.45%) come out too. Together these two are called FICA.

2. Before-tax and after-tax deductions

   A traditional 401(k) comes out before income tax is figured, so it lowers income tax, but Social Security and Medicare still apply. Health premiums and HSA money taken through payroll usually lower both. A Roth 401(k) comes out after tax. Some states tax these anyway.

3. Two wage totals on one stub

   Because a traditional 401(k) lowers income tax but not Social Security and Medicare, many stubs show two wage totals. The smaller one is what income tax uses. At year end, they show up as boxes 1 and 3 on your W-2.

   Example: $2,000 gross − $100 401(k) − $60 health = $1,840 for income tax, but $1,940 for Social Security and Medicare.

4. Budget from take-home, and check every stub

   Net pay, or take-home pay, is what lands in your account, so it’s the number to budget from. Each stub is worth a quick check: hours, pay rate, and the year-to-date (YTD) totals, which add up the whole year so far.

   Example: $2,000 gross − $523.41 taken out = $1,476.59 take-home.

Key words

gross pay

what you earned before anything comes out

net pay

what lands in your account

Also called: take-home pay

withholding

tax your employer holds back from each paycheck and sends in for you

payroll deduction

money your employer takes out of your pay for something you signed up for, like a 401(k) or health plan

Common questions

Why did Social Security stop coming out of my pay?

Social Security tax applies only up to a yearly wage cap, shown on the fact card. Pay above it owes no Social Security tax for the rest of that year. Medicare has no cap.

Remember this

Take-home is the number you can spend.

Try it: Find your take-home

1. Take your latest paystub, or a sample one if you don’t have a stub yet.
2. Find gross pay, each tax line, each payroll deduction and net pay.
3. Mark which deductions come out before tax.

Take-Home Pay Calculator.

Live facts

Numbers that change over time, with when they were last checked and where they come from.

• Social Security tax rate (employee)

  6.2%

  Taken from each paycheck up to the wage base; employers pay the same again

  As of 2026

  Source: IRS.gov(opens in a new tab)

• Medicare tax rate (employee)

  1.45%

  Taken from every paycheck; employers pay the same again

  As of 2026

  Source: IRS.gov(opens in a new tab)

• Social Security wage base

  $184,500

  Pay above this in a year owes no Social Security tax

  As of 2026

  Source: SSA.gov(opens in a new tab)