How do I figure out my paycheck with taxes and deductions?

Understanding your paycheck is one of the most practical steps you can take toward managing your money. Many people see their gross salary and wonder why their take-home pay is lower. The difference lies in taxes and deductions. Let’s break it down step by step so you can clearly see how much money you actually bring home.

Step 1: Start With Your Gross Pay

Your gross pay is the amount you earn before any deductions.

• Salary workers: Divide your annual salary by the number of pay periods in the year (weekly, biweekly, monthly).
• Hourly workers: Multiply your hourly rate by the number of hours worked in that pay period.

Example: If you make $60,000 per year and are paid biweekly (26 times), your gross pay per paycheck is about $2,307.69.

Step 2: Subtract Pre-Tax Deductions

Pre-tax deductions reduce your taxable income, which means you pay less in taxes. Common examples include:

• Retirement contributions (401(k), 403(b))
• Health insurance premiums
• Health Savings Account (HSA) contributions

Example: If you contribute $200 per paycheck to your 401(k) and $150 to health insurance, your taxable income drops to $1,957.69.

Step 3: Federal Income Tax Withholding

Your employer uses your W-4 form and the IRS tax tables for the year to estimate how much federal income tax to withhold. The amount depends on:

• Your total income
• Filing status (single, married, head of household)
• Any dependents or credits you claim

Step 4: FICA Taxes (Social Security & Medicare)

These are mandatory federal payroll taxes:

• Social Security: 6.2% of wages (up to the annual wage cap)
• Medicare: 1.45% of all wages (plus 0.9% extra for high earners)

On a $1,957.69 taxable paycheck:

• Social Security = $121.38
• Medicare = $28.39

Step 5: State and Local Taxes

Most states also withhold income tax, though rates vary. Some cities and municipalities add local taxes too.

Example: In New York, you’d see state income tax plus possible NYC local tax. In states like Texas or Florida, no state income tax is withheld.

Step 6: Post-Tax Deductions

After all required taxes, you may have additional deductions like:

• Roth IRA contributions
• Union dues
• Charitable donations

These do not reduce taxable income, but they still lower your final take-home pay.

Step 7: Arrive at Net Pay (Your Take-Home)

Using our example:

• Gross Pay: $2,307.69
• Minus Pre-Tax Deductions: $350.00
• Taxable Pay: $1,957.69
• Minus Federal, FICA, State Taxes (approx.): $500–600
• Minus Post-Tax Deductions: $50

Net Pay (Take-Home): ≈ $1,300–1,400 per paycheck

Tools That Can Help

If doing the math feels overwhelming, several paycheck calculators can handle the numbers for you. Trusted options include:

• IRS Tax Withholding Estimator (for federal accuracy)
• ADP or PaycheckCity calculators (for gross-to-net breakdowns)
• State-specific paycheck calculators (helpful for local tax accuracy)

FAQs: Quick Answers

1. How can I estimate my paycheck without a calculator?
Start with gross pay, subtract pre-tax deductions, apply federal and FICA rates, then subtract state and post-tax deductions.

2. Why is my take-home pay less than I expected?
Pre-tax benefits, higher withholding, or state/local taxes may lower your net pay.

3. Do bonuses get taxed differently?
Yes, they’re often taxed at a flat supplemental rate (22% federal in 2025).

4. What if I live in a state with no income tax?
You’ll still pay federal and FICA, but state income tax won’t be withheld.

5. How often should I adjust my W-4?
Update it after major life changes—like marriage, new dependents, or a second job.