Your paycheck is smaller than your salary for reasons that are entirely knowable. Learn the handful of deductions that make up the gap and you gain real control: over how much tax you pre-pay, how big your refund is, and whether April brings a refund or a bill. This guide reads a pay stub from gross to net.
From gross pay to net pay
Money leaves your paycheck in a specific order, and each layer behaves differently:
- Pre-tax deductions — traditional 401(k), health/dental premiums, HSA/FSA. Subtracted before tax, so they lower the income that's taxed.
- Federal income tax withholding — based on your W-4 and the IRS tables.
- FICA — Social Security and Medicare, a flat percentage of wages.
- State and local income tax — where applicable.
- After-tax deductions — Roth 401(k), some insurance, garnishments.
What remains is your net, take-home pay. The paycheck calculator reproduces this exact waterfall for any salary and set of deductions.
FICA: the flat 7.65%
Two payroll taxes come out at fixed rates and are not affected by your W-4:
- Social Security: 6.2% of wages, up to the 2026 wage base of $184,500. Earn above that and the 6.2% stops for the rest of the year.
- Medicare: 1.45% of all wages, no cap, plus an extra 0.9% on wages above $200,000.
Together that's 7.65% (FICA), matched by your employer. Notably, a traditional 401(k) lowers your income-tax withholding but not your FICA — which is why your W-2 Box 5 (Medicare wages) is higher than Box 1 (taxable wages).
Why your refund is the wrong goal
A refund feels like a windfall, but it's simply the return of money the government held — interest-free — all year. The average refund hovers around $3,000, roughly $250 a month that could have been in your paycheck, your savings, or paying down debt. The mathematically ideal outcome is a small refund or a small balance due: it means your withholding closely matched your real tax.
How to read your withholding
To check whether you're on track, multiply the federal income tax withheld on one paycheck by your number of pay periods (26 for biweekly, 24 for semi-monthly). Compare that annual figure to your estimated tax from the income tax calculator. A large gap in either direction signals a W-4 adjustment.
- Withholding far above your tax → big refund coming → reduce withholding to boost each paycheck.
- Withholding below your tax → balance due (maybe a penalty) → add to Step 4(c) on your W-4.
The marginal-rate myth
A persistent fear is that earning more — a raise or overtime — could "bump you into a higher bracket" and lower your take-home. It can't. Brackets are marginal: only the dollars above each threshold are taxed at the higher rate, so every extra dollar earned still leaves you with more after tax. If you've ever hesitated over overtime for this reason, our guide on how tax brackets actually work walks through the math.
Fixing a withholding problem
Whether you over- or under-withheld, the fix is the same form: a new W-4. To withhold more, add a dollar amount in Step 4(c). To withhold less, claim dependents in Step 3 or remove extra amounts. Changes take effect within a pay cycle or two — so the sooner in the year you adjust, the more paychecks absorb the change smoothly. Confirm the result with the refund estimator before year-end.
How bonuses and supplemental pay are withheld
Bonuses, commissions, and other "supplemental wages" follow special withholding rules. The most common is the flat 22% method: employers withhold a flat 22% of the bonus for federal income tax (38.5% on amounts over $1 million). That is withholding, not your actual tax — if your real bracket is 12%, too much was held and you'll recover it at filing; if you're in the 32% bracket, too little was held and you may owe. The alternative "aggregate" method lumps the bonus with regular pay and withholds at your normal rate. Either way, a large bonus is a good prompt to check your annual withholding and adjust Step 4(c) so the year still balances.
Key takeaways
- Take-home pay = gross minus pre-tax benefits, income-tax withholding, FICA, and state tax.
- FICA is a flat 7.65% and isn't changed by your W-4.
- A big refund means you over-withheld — adjust the W-4 to keep more each check.
- Bonuses are often withheld at a flat 22%, which may not match your real rate.
- A raise never lowers take-home pay because brackets are marginal.