The “pretax income” on your paycheck is your gross pay: every dollar you earned in the pay period before taxes, retirement contributions, insurance premiums, or any other deductions come out. On most pay stubs it appears as the line labeled “Gross Pay,” sitting at the top of the stub while “Net Pay” — what actually lands in your bank account — sits at the bottom. The gap between the two is everything your employer withheld or deducted on your behalf.
What’s Included in the Pretax Number
For a salaried worker, pretax income is your full annual salary broken into pay periods. For an hourly worker, it’s every dollar you earned for the hours you worked. On top of base pay, your employer adds every other form of compensation at full value before anything is withheld: bonuses, sales commissions, overtime, tips, holiday premiums, and shift differentials all count.
If you receive restricted stock units or other equity, the fair market value of the shares on the day they vest is also part of your pretax income and typically shows up on your W-2.
The IRS uses a broader definition for tax purposes. Under federal law, “gross income” means income from essentially any source: wages, business profits, interest, dividends, rental income, royalties, retirement distributions, and capital gains, among others.1Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined So the pretax figure on your paycheck is a subset of the gross income the IRS ultimately looks at on your return.
What Gets Taken Out Before You See the Money
Deductions fall into two buckets: mandatory withholdings required by law, and voluntary deductions you elected.
Mandatory Withholdings
Federal income tax is the largest for most workers. How much is withheld depends on your earnings, filing status, and the information you gave your employer on Form W-4.2Internal Revenue Service. Tax Withholding State income tax applies in most states under separate rules and rates.
FICA taxes fund Social Security and Medicare. You pay 6.2% of wages toward Social Security and 1.45% toward Medicare, a combined 7.65%.3Social Security Administration. FICA and SECA Tax Rates The Social Security portion applies only up to $184,500 of earnings in 2026; anything above that ceiling is exempt from the 6.2% tax.4Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet Medicare has no wage cap. If you earn above $200,000 as a single filer, or $250,000 filing jointly, an additional 0.9% Medicare surtax applies on the excess.5Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Voluntary Pretax Deductions
These are the deductions that not only lower your take-home pay but also lower the wages the IRS treats as taxable. That’s their appeal.
The most common is a traditional 401(k) or 403(b) retirement contribution. For 2026, you can defer up to $24,500, plus an additional $8,000 if you’re 50 or older. Workers aged 60 through 63 qualify for a higher catch-up limit of $11,250.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Because these contributions come out before federal income tax is calculated, every dollar you contribute lowers your current tax bill.
Health Savings Account contributions work the same way. For 2026, the limit is $4,400 for individual coverage and $8,750 for family coverage.7Internal Revenue Service. Expanded Availability of Health Savings Accounts Under the One, Big, Beautiful Bill Act Health insurance premiums, flexible spending account contributions for medical or dependent care expenses, and certain transit benefits also come out pretax. Each lowers the wages reported as taxable income on your W-2, even though they don’t change your gross pay.
Finding Pretax Income on Your Pay Stub and W-2
The pay stub is the easy part. “Gross Pay” shows your pretax earnings for the pay period, and the year-to-date figure shows your cumulative gross since January 1.
The W-2 needs a closer look, because the boxes don’t all show the same number. Box 1, “Wages, tips, other compensation,” is your taxable wages, which means pretax deductions like 401(k) contributions have already been subtracted. Boxes 3 and 5 report your Social Security and Medicare wages. Retirement contributions are still subject to FICA even when they’re exempt from income tax, so Boxes 3 and 5 are often higher than Box 1.8Internal Revenue Service. General Instructions for Forms W-2 and W-3 If you made no pretax retirement contributions, the numbers will match. If you did, Box 5 is usually the closest approximation of your true gross pay, since Medicare wages have no cap and no pretax retirement exclusion.
How Pretax Income Turns Into Taxable Income
One of the most common sources of confusion is the chain between the gross number on your paycheck and the amount the IRS actually taxes. The path runs: gross income, minus above-the-line deductions, equals Adjusted Gross Income (AGI); AGI, minus either the standard deduction or itemized deductions, equals taxable income.
Above-the-line deductions are adjustments you can take whether or not you itemize. Common ones include student loan interest, traditional IRA contributions, HSA contributions made outside of payroll, and educator expenses.9Internal Revenue Service. Credits and Deductions for Individuals
AGI matters because it’s the benchmark the IRS and many other programs use. Eligibility for education credits, the deductibility of medical expenses, and contribution limits for Roth IRAs all hinge on AGI or the closely related Modified AGI. After subtracting the standard deduction — $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household in 2026 — you arrive at taxable income, the figure that actually determines your tax bill.10Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
Why the Pretax Number Matters Beyond Taxes
Loan Applications
When you apply for a mortgage, auto loan, or personal loan, the lender looks at your debt-to-income ratio: total monthly debt payments divided by monthly gross income. Lenders use pretax income rather than take-home pay because it provides a consistent comparison across applicants, regardless of anyone’s tax situation or voluntary deductions. Most mortgage lenders look for a DTI below roughly 43%, though some loan programs allow higher ratios when there are compensating factors like a strong credit score or large cash reserves.
Federal Tax Brackets
Federal income tax rates for 2026 run from 10% to 37%, and they apply to taxable income rather than raw gross pay. Your pretax income is the starting point, but the number that actually gets slotted into a bracket is what remains after your pretax deductions, above-the-line adjustments, and standard or itemized deduction. The rates are marginal, so only the income within a given bracket is taxed at that bracket’s rate.10Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
Government Benefits
Eligibility for subsidized health insurance through the ACA Marketplace depends on your household’s Modified Adjusted Gross Income relative to the Federal Poverty Level.11HealthCare.gov. Federal Poverty Level (FPL) – Glossary Households with income between 100% and 400% of the FPL qualify for premium tax credits. Medicaid eligibility in states that expanded coverage generally extends to adults at or below 138% of the FPL.12Medicaid.gov. Eligibility Policy Because these programs use MAGI rather than raw gross pay, pretax retirement contributions, HSA contributions, and other above-the-line deductions can lower your MAGI enough to qualify you for benefits you might otherwise miss.
A Note If You’re Self-Employed
If you work for yourself, there’s no employer paycheck and no “gross pay” line to point to. Your pretax income is your gross business receipts, reported on Line 1 of Schedule C.13Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040) – Profit or Loss From Business After subtracting business expenses you arrive at net self-employment income, which is what’s subject to income tax and to self-employment tax — a combined 15.3% covering both the employee and employer halves of FICA.3Social Security Administration. FICA and SECA Tax Rates You can deduct half of your self-employment tax when calculating AGI.14Internal Revenue Service. Topic No. 554, Self-Employment Tax