What Is Net Pay? Deductions, Withholding, and Calculation

Net pay is the amount of money that actually lands in your bank account or on your paycheck after every required tax, elected benefit contribution, and court-ordered withholding has been pulled from your total earnings. It is smaller than your salary, sometimes considerably so. If you earn $60,000 a year, what you can spend on rent, groceries, and savings is your net pay, not that headline number.

Everything on your paystub is a step in one calculation: gross pay at the top, deductions in the middle, net pay at the bottom.

Gross Pay: The Starting Number

Gross pay is your total compensation before anything is taken out. For a salaried worker, it is the annual salary divided by the number of pay periods in the year. For an hourly worker, it is the hourly rate multiplied by hours worked, plus any overtime, commissions, or bonuses earned during that period.

Non-exempt employees who work more than 40 hours in a workweek are owed at least 1.5 times their regular rate for the additional hours under the Fair Labor Standards Act.¹ All of that goes into the gross figure at the top of the paystub, and every deduction below flows from it.

Taxes Your Employer Must Withhold

Some deductions are not optional. Your employer is required to withhold them, and they hit every paycheck.

Federal Income Tax

Your employer withholds federal income tax based on what you put on Form W-4: filing status, dependents, and any extra withholding you request.² The amount withheld is an estimate of what you will owe at tax time. Withhold too much and you get a refund; too little and you owe a check.³

Social Security and Medicare

Under the Federal Insurance Contributions Act, 6.2% of your gross wages goes to Social Security and 1.45% goes to Medicare.⁴ Your employer pays a matching amount, but that share does not appear on your paystub and does not reduce your pay.

Social Security tax only applies up to an annual wage base, which is $184,500 for 2026.⁵ Earnings above that cap are not subject to the 6.2%. Medicare has no cap, so the 1.45% applies to every dollar you earn.

High earners pay an extra 0.9% Additional Medicare Tax on wages above $200,000 for single filers, $250,000 for married joint filers, and $125,000 for married filing separately.⁶ Employers do not match this one; it comes entirely from your paycheck.

State and Local Taxes

Most states impose an income tax that your employer withholds alongside federal. A few states have none; others use progressive brackets. Some cities and counties add a local income or earnings tax, which shows up as its own line on the paystub.

A handful of states also require employees to contribute to state disability or paid family leave programs through payroll. Those contributions provide partial wage replacement if you cannot work due to illness, injury, or family caregiving, and they appear as separate mandatory deductions where they apply.

Benefits and Savings You Elect

Beyond required taxes, most of the other deductions on your paystub are ones you chose during open enrollment. They fall into two groups, and the difference matters for your taxes.

Pre-Tax Deductions

Pre-tax deductions come out of your gross pay before federal income tax and FICA are calculated. That lowers the wages your taxes are based on, which lowers the tax itself. Common examples:

Health, dental, and vision insurance premiums paid through payroll are typically excluded from taxable income, so you avoid both income tax and FICA on those dollars.⁷
Traditional 401(k) or 403(b) contributions reduce your taxable wages for the year. The 2026 contribution limit is $24,500, with an $8,000 catch-up for workers 50 and older.⁸
Health Savings Account contributions are pre-tax if you are enrolled in a qualifying high-deductible health plan. The 2026 limits are $4,400 for individual coverage and $8,750 for family coverage.⁹
Health care Flexible Spending Account contributions are also pre-tax, up to $3,400 in 2026.

For retirement accounts, the tradeoff is timing: you skip the tax today but owe income tax when you withdraw in retirement.

Post-Tax Deductions

Post-tax deductions come out after taxes have already been calculated, so they do not lower your current tax bill. Common examples include Roth 401(k) or Roth 403(b) contributions (which come out after tax so that qualified withdrawals in retirement are tax-free), union dues, payroll-deducted charitable giving, and premiums for voluntary supplemental life or disability coverage.

Both pre-tax and post-tax elections require your written authorization. You can generally change them during open enrollment or after a qualifying life event such as marriage, a birth, or the loss of other coverage.

Garnishments and Court-Ordered Withholding

If a court or government agency orders it, your employer must withhold part of your pay to satisfy a debt. Garnishments are involuntary, and the caps depend on the type of debt.

For consumer debts like credit cards, medical bills, and personal loans, federal law limits garnishment to 25% of your disposable earnings, or the amount by which your weekly earnings exceed 30 times the federal minimum wage, whichever is less. At the current $7.25 federal minimum wage, disposable earnings at or below $217.50 per week cannot be garnished for consumer debt at all.¹⁰
For child support and alimony, up to 50% of disposable earnings can be garnished if you are supporting another spouse or child, or up to 60% if you are not. An additional 5% can be taken if payments are more than 12 weeks in arrears.¹⁰
For defaulted federal student loans, the Department of Education can garnish up to 15% of disposable pay without a court order through administrative wage garnishment.¹¹
For federal and state tax debts, the standard 25% consumer cap does not apply. The IRS and state tax agencies can take larger amounts, though they must leave you with a minimum exempt amount based on your filing status and dependents.

Garnishments are calculated on disposable earnings (what remains after mandatory tax withholding), not on gross pay. On your paystub, they appear between the tax deductions and the net pay line.

How the Math Works

The formula is: gross pay, minus mandatory taxes, minus voluntary deductions, minus any garnishments, equals net pay.

A simplified example for a single filer paid monthly with $5,000 in gross earnings:

Gross pay: $5,000.00
Federal income tax withheld: −$450.00 (varies by W-4 elections)
Social Security (6.2%): −$310.00⁴
Medicare (1.45%): −$72.50
State income tax: −$200.00 (varies by state)
Health insurance premium (pre-tax): −$150.00
401(k) contribution (pre-tax): −$250.00
Total deductions: −$1,432.50
Net pay: $3,567.50

In practice, the pre-tax health premium and 401(k) contribution would be subtracted before income tax is calculated, which slightly lowers the federal and state withholding. Payroll software handles the sequencing automatically, but the basic structure is the same: gross minus deductions equals what you take home.

Reading Your Paystub

Your employer must issue an earnings statement each pay period that itemizes every part of the calculation, and must keep records of wages and deductions.¹² Net pay is usually the bottom line, labeled something like Net Pay, Total Take Home, or Check Amount.

Give the paystub a quick read every pay period. Confirm that your gross matches the salary or hours you expect. Check that each deduction line matches the benefits you actually elected. Verify that Social Security is 6.2% and Medicare is 1.45% of the right wage base. If something looks off, contact payroll right away. Withholding errors that go unnoticed can turn into a surprise tax bill or a missed retirement contribution, and your final paystub of the year should match the totals on the W-2 you use to file your return.

1
Office of the Law Revision Counsel. 29 USC Ch. 8 – Fair Labor Standards
2
Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
3
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
4
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
5
Social Security Administration. Contribution and Benefit Base
6
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
7
Internal Revenue Service. Publication 502, Medical and Dental Expenses
8
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026
9
Internal Revenue Service. Expanded Availability of Health Savings Accounts
10
Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment
11
Office of the Law Revision Counsel. 20 USC 1095a – Wage Garnishment Requirement
12
U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act