- How to Read a Paycheck: Paychecks Decoded (you are here)
- Social Security Tax Wage Base vs Medicare Tax Explained
Your paycheck is smaller than your salary because other people get paid first. Some pay is set aside before tax for things like retirement or health insurance. Then two different taxes are withheld: FICA, which is Social Security and Medicare, and income tax. They are worked out in different ways, so they don’t move together. That is why a bonus, a second job or a raise late in the year can make a check look odd. Nothing disappears; withholding is an estimate that is settled when you file your tax return.
Why it matters: Knowing the pieces lets you spot a surprise before it becomes a tax bill.
Summary: Take-home pay is gross pay minus pre-tax deductions, FICA and income tax withholding. On the running $75,000 salary, a $2,884.62 biweekly check nets $2,163.60, 75.0% of gross, in a state without income tax. The two taxes use different bases and different methods, and that difference explains most paycheck surprises: bonuses, second jobs, overtime and the late-year raise high earners see.
- FICA is 7.65% of wages after cafeteria-plan premiums; a traditional 401(k) deferral lowers income tax but not FICA.
- Payroll withholds income tax as if each check were paid all year: $67,900 annualized, minus $16,100, gives $234.92 a check.
- Bonuses are usually withheld at a flat 22% federal rate (37% on supplemental pay above $1 million in a year).
- Each employer withholds as if its job were your only one: a couple earning $75,000 and $60,000 can come up $4,560 short by April without Step 2 of Form W-4.
- Social Security tax stops at $184,500 of wages in 2026; Medicare tax never stops and adds 0.9% above $200,000.
- For this household each $1 of traditional 401(k) costs $0.78 of take-home pay and, with a 50% match, puts $1.50 in the account.
Throughout this volume we follow a single filer earning $75,000, paid biweekly: $2,884.62 gross and $2,163.60 net per paycheck, assuming no state income tax. This section builds those numbers.
Every earlier section in this Part has referenced “take-home pay” without fully explaining how gross salary actually becomes it. This section closes that gap completely, using current 2026 U.S. federal rates on a real salary — the same worked example referenced throughout this Part.
A paycheck moves through four distinct stages, in this order:
- Gross pay — the full salary or wage amount for the pay period, before anything is withheld.
- Pre-tax deductions — money diverted before federal income tax is calculated: traditional 401(k)/403(b) contributions, and health insurance premiums paid through an employer’s Section 125 cafeteria plan.
- Taxes withheld — federal income tax, state and local income tax where applicable, and FICA (Social Security and Medicare).
- Net pay — what actually deposits into your bank account, sometimes further reduced by post-tax deductions such as Roth 401(k) contributions or wage garnishments.
Annual salary: $75,000, paid biweekly (26 paychecks/year) → gross pay per check = $75,000 ÷ 26 = $2,884.62.
Pre-tax deductions: a 6% traditional 401(k) contribution removes $173.08 per check ($4,500/year); a $100 per-check health insurance premium is deducted through the employer’s cafeteria plan.
FICA: Social Security and Medicare are calculated on gross pay minus only the cafeteria-plan health premium (401(k) contributions are not exempt from FICA, only from income tax) — $72,400 annual FICA wages × (6.2% + 1.45%) = $5,538.60/year, or $213.02 per check.
Federal income tax: annual taxable wages for income tax = $75,000 − $4,500 (401(k)) − $2,600 (health premiums) = $67,900; minus the 2026 single standard deduction of $16,100 = $51,800 taxable income. Applying the 2026 brackets — 10% on the first $12,400, 12% up to $50,400, and 22% on the remaining $1,400 — gives $6,108.00 in annual federal tax, or $234.92 per paycheck. The marginal rate on this income is 22%; the effective rate is only 8.1% of gross salary, because the lower brackets are taxed at their own lower rates first.
Net pay: $2,884.62 − $173.08 − $100.00 − $234.92 − $213.02 = $2,163.60 per paycheck — the number this entire Part has been building toward, and the number every budgeting method in 1.3 actually allocates.
State income tax: every figure above assumes a state with no income tax on wages, such as Texas, Florida or Washington. In a state with a flat 5% income tax that, for simplicity, taxes the same $67,900 the federal calculation starts from (real state deductions vary), state tax would be $67,900 × 5% = $3,395 a year, or $3,395 ÷ 26 = $130.58 per paycheck. Net pay falls to $2,163.60 − $130.58 = $2,033.02, about 70.5% of gross ($2,033.02 ÷ $2,884.62) rather than 75.0%. In that case, run 1.3’s split on your own net figure: 20% of $2,033.02 is $406.60.
Your employer does not know your annual income; it knows this check. The IRS percentage method in Publication 15-T bridges the gap by annualizing: multiply the period’s taxable wages by the number of pay periods, subtract the standard deduction built into the tables, apply the year’s brackets, and divide back. For the running household: ($2,884.62 − $173.08 − $100.00) × 26 = $67,900; $67,900 − $16,100 = $51,800; tax on $51,800 is $6,108; $6,108 ÷ 26 = $234.92. (The 2026 worksheet subtracts $8,600 and its single-filer table starts the 10% rate at $7,500; together they are the $16,100 standard deduction.)
The method is exact only when every check is the same size. A check swollen by overtime is annualized as though you earned that much all year, so it is over-withheld, and the excess comes back when you file. Bonuses have their own rules. The employer may withhold a flat 22% on supplemental wages (37% on supplemental pay above $1 million in a year), or add the bonus to a regular check and withhold “as if the total were a single payment.” Take a $3,000 bonus. Combined with a regular check and annualized, ($2,611.54 + $3,000) × 26 = $145,900, and the extra withholding on that check comes to about $678.54; at the flat rate it is $3,000 × 22% = $660.00. For this household both are close to the true extra tax, $660, because its top dollars sit in the 22% bracket. For someone whose income stays in the 12% bracket, the flat 22% over-withholds by 10 points, $300 on the same bonus, refunded the next spring. Either way FICA takes $3,000 × 7.65% = $229.50.
Most filers get money back. In the 2026 filing season, the IRS reported an average refund of $3,273 on 97.9 million refunds through May 1, 2026, up 11.1% from $2,947 a year earlier. Not all of a refund is over-withholding, because refunds also pay out refundable credits such as the earned income tax credit. But a $3,273 refund that came entirely from withholding would mean $3,273 ÷ 26 = $125.88 per biweekly check withheld beyond what was owed: an interest-free loan to the Treasury that, held for an average of half a year at 4%, gave up roughly $3,273 × 4% × 0.5 = $65.46 of interest. The dollar cost is modest. The more expensive error runs the other way: under-withholding large enough to trigger a balance due of $1,000 or more and a possible penalty (9.3).
Notice what the 401(k) contribution actually did here: it reduced federal taxable income by $4,500, which — at a 22% marginal rate — saved roughly $990 in federal tax alone over the year, while simultaneously building retirement savings. That single mechanic, the tax-advantaged account lowering the amount income tax is even calculated on, is the entire subject of Part 6, and it’s worth re-reading this worked example again once you get there — the number $173.08 will mean considerably more the second time.
Same $75,000 salary, same $100 health premium, three choices for the 6% slot, with the common match of 50% of contributions up to 6% of pay (6.5). A Roth 401(k) contribution comes out after tax, so taxable income stays at $75,000 − $2,600 − $16,100 = $56,300, on which 2026 tax is $7,098, or $273.00 a check. FICA is $213.02 in every column because neither kind of 401(k) contribution reduces it.
| Per check unless noted | A. Traditional 6% | B. Roth 6% | C. No contribution |
|---|---|---|---|
| Federal income tax | $234.92 | $273.00 | $273.00 |
| Take-home pay | $2,163.60 | $2,125.52 | $2,298.60 |
| Take-home pay per year | $56,253.60 | $55,263.52 | $59,763.60 |
| Into the 401(k) per year | $6,750 ($4,500 + $2,250 match) | $6,750 ($4,500 Roth + $2,250 match) | $0 |
| Take-home cost of each $1 contributed | $0.78 | $1.00 | — |
C keeps $59,763.60 − $56,253.60 = $3,510 more a year than A, $135.00 a check, and gives up $6,750 of contributions to do it: every $1 of take-home pay A surrenders puts $6,750 ÷ $3,510 = $1.92 into the account. B costs $38.08 a check more than A, which is $990 a year: the tax on $4,500 at 22%, paid now instead of at withdrawal.
The flip points: A against C has none while the match is yours to keep; C comes close only if you will leave before the match vests (6.7: Vesting, Rollovers, and What Happens When You Change Jobs). If A saves the $990 a year of tax it defers in a comparable tax-advantaged account, A against B turns on a single input, your tax rate when the money comes out: below 22%, A wins; above 22%, B wins; at exactly 22% they tie. Section 6.3 works through how to estimate that future rate.
Reading your own pay stub. Every stub shows a current-period column and a year-to-date (YTD) column. Three checks catch most errors, and they are worth doing on the first check of each year and after any change in pay or benefits:
- The 401(k) line should equal your elected percentage of gross: 6% × $2,884.62 = $173.08.
- Social Security and Medicare should be 6.2% and 1.45% of gross minus cafeteria-plan premiums: ($2,884.62 − $100.00) × 7.65% = $2,784.62 × 7.65% = $213.02. If the 401(k) has been subtracted from this base too, payroll is under-collecting FICA.
- YTD federal withholding, scaled to a full year, should land near the tax you expect to owe: after 13 checks, $234.92 × 13 = $3,053.96, and $3,053.96 × 26 ÷ 13 = $6,107.92 against $6,108 owed.
Lines below net-of-tax pay, such as Roth 401(k) contributions, union dues or a garnishment, come out after both taxes and lower neither.
Six questions on this chapter. Decide on your answer first, then click “Reveal Answer.”
1. The $75,000 earner, paid biweekly in 2026, contributes 6% to a traditional 401(k) and pays a $100 health premium per check through a Section 125 cafeteria plan. How much FICA comes out of each paycheck?
- $199.78
- $213.02
- $172.65
- $220.67
Reveal Answer
Answer: B. FICA wages exclude only the cafeteria-plan premium: ($75,000 − $2,600) × 7.65% ÷ 26 = $213.02. Using gross gives $220.67; also removing the 401(k) gives $199.78; Social Security alone gives $172.65. (Part 1.6: Paychecks Decoded)
2. A single filer earns $75,000 in 2026, puts $4,500 into a traditional 401(k) and pays $2,600 of cafeteria-plan health premiums. Using the $16,100 standard deduction and brackets of 10% to $12,400, 12% to $50,400 and 22% above, what is the annual federal income tax?
- $6,108.00
- $7,670.00
- $9,650.00
- $11,396.00
Reveal Answer
Answer: A. Taxable income = $75,000 − $4,500 − $2,600 − $16,100 = $51,800; tax = 10% × $12,400 + 12% × $38,000 + 22% × $1,400 = $6,108. Skipping the pre-tax deductions, skipping the standard deduction, or taxing all $51,800 at 22% gives the others. (Part 1.6: Paychecks Decoded)
3. The $75,000 earner sits in the 22% federal bracket, yet federal income tax takes only 8.1% of gross salary. What explains the gap?
- Federal tax is figured on net pay rather than on the gross salary
- Each bracket taxes only its own slice, so early dollars pay 10% and 12%
- The 22% rate applies only to the share of pay withheld for FICA taxes
- The standard deduction is credited back as a refund at year-end by the IRS
Reveal Answer
Answer: B. The 22% marginal rate applies only to the last dollars of taxable income; lower slices are taxed at 10% and 12% first, and pre-tax deductions plus the standard deduction shrink the base, so the effective rate is 8.1%. (Part 1.6: Paychecks Decoded)
4. A reader in a state with a flat 5% income tax wants to apply 50/30/20 to her own $75,000 salary, using this volume’s biweekly example. What should she do first?
- Take the whole state tax out of the 20% savings share alone
- Split the $2,163.60 example figure and treat state tax as a need
- Recompute net pay after her state’s tax and split that lower figure
- Apply the split to gross pay so the state tax is spread across buckets
Reveal Answer
Answer: C. The $2,163.60 assumes a state with no income tax; with 5% on $67,900, net pay drops to $2,033.02, and the 50/30/20 split must run on her own net figure (20% becomes $406.60). (Part 1.6: Paychecks Decoded)
5. Worked problem: A biweekly paycheck is $2,400 gross. What is the FICA withholding, split into Social Security (6.2%) and Medicare (1.45%)?
Reveal Answer
Answer: Social Security = $2,400 × 6.2% = $148.80; Medicare = $2,400 × 1.45% = $34.80; total = $183.60.
6. Worked problem: Besides FICA, $120 goes to a 401(k), $215 to federal income tax and $85 to a health premium. What is net pay?
Reveal Answer
Answer: Net = $2,400 − $183.60 − $120 − $215 − $85 = $1,796.40.