Reviewed 13 August 2026 · Sourced from the IRS, the Social Security Administration and Publication 15
Gross pay is the number in the job offer. Net pay is the number in your account. They are never the same, and the difference is usually around a quarter to a third of the total.
Everything between the two falls into three buckets: taxes, pre-tax deductions, and post-tax deductions. Only the first bucket is money that leaves. The other two frequently contain money that is still yours — which is why net pay is the right number to budget on and the wrong number to judge a job offer by.
- Budget on net, evaluate offers on gross. Rent, car payments and every monthly plan you make run on take-home. A job offer runs on gross plus benefits. Using the wrong one in either direction is a real and common mistake.
- FICA is 7.65% and it barely moves: 6.2% for Social Security plus 1.45% for Medicare. In 2026 Social Security stops at $184,500 of wages; Medicare has no cap, and an extra 0.9% applies above $200,000 for a single filer.
- Order matters, and it is not intuitive. Pre-tax health premiums under a Section 125 plan reduce your income-tax and FICA wages. Traditional 401(k) deferrals reduce income-tax wages but not FICA wages.
- Not every deduction is a loss. The money going to a 401(k) or an HSA is still yours; it just moved. Separate “gone” from “relocated” before you conclude the gap is all tax.
- Your federal withholding is a setting, not a fact. It is produced by the Form W-4 on file. A wrong filing status or a stale W-4 quietly changes your net pay every period until someone notices.
- Payroll errors are common and silent. Wrong state, a benefit deduction still running after you dropped the plan, a missed rate change. Nobody catches these for you.
The gap between the offer and the deposit
Someone offers you $52,000. You do the division — a bit over $4,300 a month — and you start planning around it. Then the first deposit arrives and it's about $3,000, and there is a moment of genuine confusion about where a fifth of the job went.
Nothing went wrong. Gross pay is total earnings before anything is taken out, and it is the number every job posting, offer letter and salary survey quotes. Net pay is what remains after the employer applies every legally required withholding and every deduction you authorized. Both numbers appear on every pay stub, usually with a column of subtractions between them that almost nobody reads line by line.
The gap is typically 25% to 35% of gross for a typical wage earner, which means a rule of thumb is worth carrying: assume roughly 70% of gross reaches your account, then check the real figure once your first stub arrives. That estimate is close enough to plan with and wrong enough that you should replace it with the actual number as soon as you have one.
Gross is what you earn. Net is what you have. Every budget, rent calculation and monthly commitment belongs on the second number.
The three buckets, in the order they apply
Deductions come off in a specific sequence, and the sequence changes the answer because each layer decides what the next layer is calculated on.
1. Pre-tax deductions come out first
Health, dental and vision premiums run through a Section 125 cafeteria plan, plus HSA and FSA contributions and traditional 401(k) or 403(b) deferrals. These reduce the wages that tax is then calculated on, which is the entire point of them — a dollar into pre-tax benefits costs you less than a dollar of take-home.
2. Taxes are calculated on what's left
FICA is the fixed part: 6.2% Social Security and 1.45% Medicare, 7.65% combined. Federal income tax withholding is the variable part, computed from your Form W-4 using the tables in IRS Publication 15-T. State and local income tax applies where your state imposes one; nine states do not tax wage income at all.
3. Post-tax deductions come off the remainder
Roth 401(k) contributions, union dues, life insurance above the employer-paid amount, charitable payroll giving, and court-ordered items such as a wage garnishment or child support. These reduce your deposit and give you no tax benefit.
Pre-tax is not one uniform category. A Section 125 health premium reduces both your income-tax wages and your FICA wages. A traditional 401(k) deferral reduces your income-tax wages but not your FICA wages — elective deferrals are still subject to Social Security and Medicare tax.
This is why the Social Security wages box on your W-2 is usually higher than the federal wages box, and it confuses people every January. It is not an error.
A worked pay stub
One job, one stub, every line in order.
Twenty-six checks of $2,000 gross. Health premium of $120 through a Section 125 plan, a 5% traditional 401(k) deferral, and a state income tax of 4%.
Take-home is about 70% of gross. Annualized, that “$52,000 job” deposits roughly $36,269 — about $15,700 less than the headline.
Two details in that stub are worth pointing at, because they are where the arithmetic stops being obvious.
FICA is calculated on $1,880, not $2,000. The $120 health premium came out first and reduced FICA wages. The $100 going to the 401(k) did not — elective deferrals are still subject to Social Security and Medicare, so it is not subtracted before those two lines.
Income tax is calculated on $1,780. Both the health premium and the 401(k) deferral reduce income-tax wages, so the federal and state lines work off a smaller base than FICA does. Same stub, two different taxable wage figures.
The number that left is $385, not $605. The $100 changed accounts and the $120 bought a thing with a price. That distinction is the difference between “I lose a third of my pay” and an accurate picture.
FICA: the part that doesn't depend on you
Income tax withholding varies with your W-4, your state and your situation. FICA mostly doesn't, which makes it the one piece of the stack you can predict exactly.
| Rate (employee) | 2026 wage cap | |
|---|---|---|
| Social Security | 6.2% | $184,500 |
| Medicare | 1.45% | No cap |
| Additional Medicare | +0.9% | Above $200,000 (single filer) |
| Combined, standard | 7.65% | — |
Your employer pays a matching 6.2% and 1.45% that never appears on your stub, so 15.3% of your wages goes to these programs in total. If you are self-employed you pay both halves yourself, which is what self-employment tax is.
The Social Security wage base rises most years — it was $176,100 in 2025 and is $184,500 in 2026, making the maximum employee Social Security tax $11,439. If you earn above the cap, your take-home rises partway through the year when Social Security withholding stops. It is not a raise, and it reverses every January.
The wage base applies per employer, not per person. Work two jobs that together exceed the cap and both will withhold Social Security on your wages independently — neither knows about the other. You claim the excess back as a credit when you file. It is refundable, but only if you notice and claim it.
Which number goes where
Both numbers are correct. They answer different questions, and using the wrong one is expensive in both directions.
| Use net pay for | Use gross pay for |
|---|---|
| Every monthly budget | Comparing two job offers |
| What rent you can carry | Loan and credit applications |
| Any recurring commitment | Rental income requirements |
| Savings and debt payoff plans | Retirement contribution percentages |
| Whether a purchase fits | Salary negotiation |
Budgeting off the $52,000 headline is how someone ends up about $15,700 short over a year and cannot account for it. The money was never there; it was withheld before the deposit was made.
The reverse error is quieter and costs more. Comparing two offers on take-home penalizes the job with better benefits — a role with a richer health plan and a bigger 401(k) match shows a lower net pay precisely because more of your compensation is being routed somewhere useful. Compare offers on gross plus the value of the benefits, then rebuild the budget on whichever net you end up with.
Landlords and lenders almost always test income against gross — the common “three times the rent” screen is three times gross. That means an apartment you formally qualify for on paper can be one your take-home cannot comfortably carry. The screen is not a budget. Run your own.
Reading the stub for what's wrong
Payroll mistakes are common, quiet, and almost never caught by the employer. They compound every pay period until somebody says something, and the somebody is you.
- Wrong state. Especially after a move, a remote arrangement, or work across a state line. You can end up owing one state and over-withheld in another, and it is a mess to unwind after year-end.
- Stale or wrong W-4. A filing status that no longer matches your life — after a marriage, a divorce, a second job — changes every check until it's updated. The IRS Tax Withholding Estimator is the fastest way to check it.
- A benefit deduction that kept running. You dropped the dental plan; the $18 kept coming out. This one is easy to miss for a year and easy to recover once spotted.
- Missing overtime or a rate change. Check the hours and the rate on the stub against what you actually worked, particularly in the first period after a raise.
- 401(k) percentage applied to the wrong base. Confirm the deferral is calculated the way you elected, and that any employer match is showing up.
- Year-to-date figures that don't add up. The YTD column is the fastest audit available: it should equal the sum of the periods. When it doesn't, something was adjusted without telling you.
Compare the first stub of the year against the last stub of the prior year, and both against your W-2. New rates, new caps and new benefit elections all take effect at once, and January is where a wrong setting gets locked in for twelve months.
What trips people up
- Dividing the salary by 12 and budgeting on that. The result overstates your actual money by roughly a third.
- Treating every deduction as a loss. 401(k) and HSA money is still yours. Insurance premiums bought something. Only the tax lines are gone.
- Comparing job offers on take-home. It penalizes the offer with better benefits. Compare gross plus benefits.
- Assuming a 401(k) contribution cuts your FICA. It doesn't. Only the income-tax lines shrink.
- Forgetting the three-paycheck months. On a biweekly schedule you get 26 checks, so twice a year a month contains three. Budget on 26 × net divided by 12, not on two checks a month.
- Ignoring a big refund or a big bill at tax time. Either one means the W-4 is set wrong. A large refund is not a windfall; it is a year of your own money you lent out at 0%.
- Never reading the stub. It is the only document that shows what you earned, what was taken, and why — and errors in it stay until you find them.
Frequently asked questions
What is net pay?
Net pay is the amount actually deposited into your account after your employer subtracts every withholding and deduction from your gross wages. That includes federal income tax withholding, state and local income tax where applicable, FICA taxes for Social Security and Medicare, pre-tax benefit deductions such as health premiums and traditional 401(k) contributions, and post-tax items such as Roth contributions, union dues or a garnishment. It is commonly called take-home pay, and it is the number every budget should be built on.
How much of my paycheck goes to taxes?
For a typical wage earner, roughly 25% to 35% of gross disappears between the offer and the deposit, though not all of it is tax. FICA alone is a fixed 7.65% — 6.2% for Social Security up to the annual wage base and 1.45% for Medicare with no cap. Federal income tax withholding varies with your Form W-4, and state income tax ranges from zero in nine states to double digits elsewhere. Some of the remaining gap is benefit deductions, which is money spent or relocated rather than taxed away.
Why is my take-home pay so much less than my salary?
Because the salary figure is gross pay, quoted before anything is withheld. On a $52,000 salary paid biweekly, a stub with a $120 health premium, a 5% 401(k) deferral and a 4% state income tax nets roughly $1,395 per check — about 70% of the $2,000 gross, or around $36,300 a year. Of the roughly $605 taken out, only about $385 is actually tax. The rest went to a retirement account that is still yours and to health coverage you are receiving.
Does a 401(k) contribution reduce my Social Security tax?
No, and this catches people every year. Traditional 401(k) elective deferrals reduce the wages your federal and state income tax withholding is calculated on, but they remain subject to Social Security and Medicare tax. Health premiums run through a Section 125 cafeteria plan behave differently — those reduce both income-tax wages and FICA wages. This is why the Social Security wages box on your W-2 is usually a larger number than the federal wages box.
Should I budget on gross or net pay?
Budget on net. Rent, car payments, subscriptions and every other recurring commitment are paid out of money that actually arrives, so the plan has to run on take-home. Use gross for a different set of questions: comparing job offers, filling in loan and rental applications, setting retirement contribution percentages, and negotiating salary. Comparing two offers on net pay actively penalizes the job with better benefits, because more of that compensation is being routed into the deductions.
What is the Social Security wage base for 2026?
$184,500, up from $176,100 in 2025. Social Security tax of 6.2% applies only to wages up to that amount, which makes the maximum employee Social Security tax $11,439 for the year. Medicare has no wage cap, and an additional 0.9% Medicare tax applies to wages above $200,000 for a single filer. The cap applies per employer, so if you hold two jobs that together exceed it, both will withhold and you claim the excess back as a credit when you file.
Related terms
Where to go next
- Find your real percentage: divide the net on your last stub by the gross on the same stub. That is your number, and it beats every rule of thumb.
- Build the month on it with the budget calculator, and split it across pay dates with the paycheck split calculator.
- Check the W-4 with the IRS Tax Withholding Estimator if last year produced a large refund or a surprise bill.
- Work through Stage 2 · Stabilize, which builds the whole plan on take-home rather than on the headline salary.
- Internal Revenue Service, Topic no. 751 — Social Security and Medicare withholding rates (6.2% and 1.45% employee rates, the employer match, and the 0.9% Additional Medicare Tax above $200,000).
- Social Security Administration, Contribution and Benefit Base (2026 taxable maximum of $184,500; $176,100 for 2025).
- Internal Revenue Service, Publication 15 (Circular E), Employer's Tax Guide (treatment of Section 125 cafeteria plan contributions and of elective deferrals for FICA purposes).
- Internal Revenue Service, Publication 15-T, Federal Income Tax Withholding Methods (how the Form W-4 produces the federal withholding figure on a stub).
- Internal Revenue Service, Tax Withholding Estimator (checking whether the W-4 on file is producing the right result).
- Internal Revenue Service, Topic no. 608 — Excess Social Security and RRTA tax withheld (claiming back over-withholding when two employers each apply the wage base).
The figures on this page are checked against the source that publishes them, and dated. Published rates move after the release named above — the linked source always carries the current number. This page explains a term; it does not recommend a product.