How to Read Your Paycheck: Gross Pay, Deductions and Net Pay, Explained

Why your salary and your take-home pay are different numbers

Your salary is the amount your employer agrees to pay you before anything is taken out. Your take-home pay — also called net pay — is what actually arrives in your bank account. The gap between the two is not a mistake by itself. It is a list of taxes and deductions, each with its own rule, and your pay stub is the record that shows them. Learning to read that record line by line is how you check you are being paid correctly, understand where a raise actually goes, and build a budget on a number that is real. As our budgeting guide puts it, a budget should always start from take-home pay, not salary.

The top of the stub: who, when, and how much you earned

Most stubs start with your name, your employer's name, the pay period (the dates you worked), and the pay date (when the money is paid). Next comes earnings: your hours, your rate, and your gross pay for the period. Gross pay is hours multiplied by rate for hourly workers, or annual salary divided by the number of pay periods for salaried workers. Someone paid every two weeks has 26 pay periods a year; someone paid twice a month has 24, which is why those two schedules produce different gross amounts from the same salary. Check this section first: a wrong rate or missing hours will flow through every line below it.

FICA: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. According to IRS Topic No. 751, Social Security and Medicare withholding rates, the employee rate for Social Security is 6.2% and the employee rate for Medicare is 1.45%. The IRS page also explains that only Social Security has a wage base limit — for earnings in 2026 that limit is $184,500 — and that there is no wage base limit for Medicare tax. The same IRS page notes an Additional Medicare Tax withholding rate of 0.9% on wages paid in excess of $200,000 in a calendar year, with no employer match. Your employer pays a matching 6.2% and 1.45% on its side; that employer share is not deducted from your pay.

Federal and state income tax withholding

Separate from FICA, your stub will usually show federal income tax withholding and, in most states, state income tax withholding. Unlike FICA's flat percentages, income tax withholding is an estimate based on your earnings and the information you gave your employer on your withholding forms. It is settled up when you file your annual tax return: too much withheld can produce a refund, too little can produce a bill. That is why this line can change when your pay changes, even though the FICA percentages stay the same.

Pre-tax deductions versus post-tax deductions

Pre-tax deductions are taken out before income tax is calculated, so they lower your taxable pay for that period. Common examples include a traditional workplace retirement contribution and a health insurance premium paid through a workplace plan. Post-tax deductions are taken out after taxes are calculated. Examples include a Roth retirement contribution and some voluntary insurance or other deductions you have authorised. The timing matters for reading the stub: two people with the same gross pay can have different taxable pay, different withholding, and different net pay simply because their deductions differ. Note also that a traditional retirement contribution lowers income-tax wages but does not lower FICA wages — in the worked example below, FICA is calculated after the illustrative health premium but not after the retirement contribution, which is why the FICA wages figure is shown explicitly.

A fully worked example — fictional and illustrative

Illustrative example only. Meet Maya, a fictional reader with an illustrative salary of $62,400 a year, paid every two weeks. Her gross pay per period is $62,400 ÷ 26 = $2,400. All deduction amounts below except the IRS FICA percentages are illustrative figures chosen for this example, including an illustrative federal withholding amount and an illustrative state withholding amount — they are not a calculation of anyone's actual tax.

Reconcile it yourself: $2,400.00 minus $80.00 minus $120.00 is $2,200.00 before tax withholding and FICA in this illustration; then $2,200.00 minus $143.84, $33.64, $210.00, $70.00 and $15.00 equals $1,727.52. That $1,727.52, multiplied across a month, is the honest starting point for the splits in our 50/30/20 budget example — and for deciding what you can move to savings in our start saving guide.

Year-to-date figures and why to glance at them

Most stubs also show year-to-date (YTD) totals for earnings and each deduction. YTD figures let you spot a deduction that started, stopped, or changed size mid-year, and they should match your final pay stub of the year against the annual wage statement your employer issues for tax filing. If a YTD total jumps by more than one period's amount, that is a clue to ask payroll a specific, calm question with the stub in hand.

Checklist for spotting errors

• Is your name, pay period, and pay date correct, and is this the schedule you expected?
• Do hours and rate multiply to the gross pay shown? For salaried pay, does salary divided by pay periods match?
• Does Social Security equal 6.2% of FICA wages (below the annual wage base) and Medicare 1.45%, using the IRS rates linked above?
• Are pre-tax and post-tax deductions amounts you authorised, at the amounts you authorised?
• Did any deduction appear, disappear, or change without a change you made or were told about?
• Does gross minus every deduction equal the net pay deposited? Re-add it — do not assume it.
• Do year-to-date totals increase by roughly one period each payday?

If something does not reconcile, ask payroll promptly and keep your stubs. Errors are usually easier to fix close to the payday when they happened.

Official resources

• IRS — Topic No. 751, Social Security and Medicare withholding rates

Next steps: How to make a budget · The 50/30/20 budget example · Start saving money

This guide is educational information, not financial advice. For advice about your specific situation, consider speaking with a qualified financial professional. See our Disclaimer.