Ever looked at your salary and then at your bank deposit and wondered, "Where did all the money go?" You're not alone. The difference between what you earn (Gross Pay) and what you actually keep (Net Pay) can be significant. This guide will walk you through exactly how to calculate your take-home pay, step by step.

A person reviewing their paycheck calculations on a laptop with a calculator and coffee.
Understanding your deductions is the key to mastering your finances.

What is the Difference Between Gross Pay and Net Pay?

This is the most fundamental concept of your paycheck. Understanding it is the first step.

  • Gross Pay: This is the total amount of money your employer pays you before any taxes or deductions are taken out. If you're a salaried employee, it's your annual salary divided by the number of pay periods. If you're hourly, it's your rate multiplied by the hours you worked.
  • Net Pay (Take-Home Pay): This is the amount of money you actually receive in your bank account after all deductions have been subtracted from your gross pay.

The basic formula is simple: Gross Pay - All Deductions = Net Pay

The tricky part is figuring out those "All Deductions." Let's break them down.

Step 1: Calculate Your Withholding Taxes

Taxes are typically the largest deduction from your paycheck. These are mandatory payments to federal and state governments.

A. Federal Income Tax

The amount withheld for federal income tax depends on the information you provided on your Form W-4. This includes your filing status (Single, Married Filing Jointly, etc.) and any claimed dependents or additional withholdings. The U.S. uses a progressive tax system, meaning higher-income earners pay a higher percentage.

B. FICA Taxes (Social Security & Medicare)

FICA is a U.S. federal payroll tax that stands for the Federal Insurance Contributions Act. It's a mandatory tax split into two parts:

  • Social Security: For 2025, the employee tax rate is 6.2% on earnings up to the annual limit.
  • Medicare: The employee tax rate is 1.45% on all of your earnings, with no income cap.

Your employer pays a matching amount for both Social Security and Medicare.

C. State and Local Income Taxes

Most states (and some cities or counties) also levy an income tax. The rates and rules vary widely. Some states have a flat tax rate, others have progressive brackets like the federal system, and a handful of states have no income tax at all.

Step 2: Subtract Pre-Tax and Post-Tax Deductions

After mandatory taxes, you may have other deductions for benefits. These can significantly impact your take-home pay.

Pre-Tax Deductions (These lower your taxable income)

  • Health Insurance Premiums: Contributions for medical, dental, or vision insurance.
  • Retirement Savings: Contributions to a traditional 401(k) or 403(b) plan.
  • Flexible Spending Account (FSA) or Health Savings Account (HSA): Money set aside for medical expenses.

Post-Tax Deductions (These do not lower your taxable income)

  • Roth 401(k) Contributions: Retirement savings made after taxes have been paid.
  • Wage Garnishments: Court-ordered payments for things like child support or unpaid debts.
  • Union Dues: Membership fees for a labor union.

The Easiest Way to See it All Come Together

Manually calculating all of this can be complex. That’s why we built our easy-to-use tool. It automates the process based on the latest tax laws so you can get a reliable estimate in seconds.

Ready to see your numbers?

Use Our Free Paycheck Calculator Now