Your pay starts as a gross number and shrinks through a series of deductions before it hits your bank account. Understanding each step, from gross pay to net (take-home) pay, lets you verify every paycheck and predict what you’ll actually receive. The core formula is simple: Net Pay = Gross Pay minus Deductions. The details live in how you calculate each piece.
Start With Your Gross Pay
Gross pay is your total earnings before anything is subtracted. How you calculate it depends on whether you’re paid hourly or on a salary.
Hourly workers: Multiply your hourly rate by the number of hours you worked in the pay period. If you earn $22 per hour and work 80 hours in a biweekly period, your gross pay is $1,760. For overtime, federal law requires that nonexempt employees earn at least one and a half times their regular rate for every hour beyond 40 in a single workweek. So if you worked 45 hours one week at $22 per hour, you’d earn $880 for the first 40 hours plus $165 for the five overtime hours (5 × $33), totaling $1,045 for that week.
Salaried workers: Divide your annual salary by the number of pay periods in the year. Most employers use one of these schedules:
- Weekly (52 pay periods): $60,000 ÷ 52 = $1,153.85
- Biweekly (26 pay periods): $60,000 ÷ 26 = $2,307.69
- Semimonthly (24 pay periods): $60,000 ÷ 24 = $2,500.00
- Monthly (12 pay periods): $60,000 ÷ 12 = $5,000.00
If you receive bonuses, commissions, or shift differentials, those get added to your gross pay for the period in which they’re paid.
Subtract Pre-Tax Deductions
Before taxes are calculated, certain deductions come out of your gross pay. These are called pre-tax deductions because they lower the income that gets taxed, which saves you money. Common pre-tax deductions include employer-sponsored health insurance premiums, contributions to a Health Savings Account (HSA), vision and dental premiums, and parking or transit benefits.
For example, if your biweekly gross pay is $2,307.69 and you pay $150 per pay period for health insurance premiums on a pre-tax basis, your taxable income for that period drops to $2,157.69. Federal income tax, Social Security, and Medicare are then calculated on that lower number.
Not every benefit is pre-tax. Items like Roth 401(k) contributions, some disability insurance, and wage garnishments are deducted after taxes. Your pay stub usually labels each deduction so you can tell the difference.
Calculate FICA Taxes
FICA stands for the Federal Insurance Contributions Act, and it funds Social Security and Medicare. These taxes are flat percentages applied to your taxable wages (gross pay minus pre-tax deductions).
Social Security: 6.2% of your wages, up to the annual wage base. For 2026, that cap is $184,500. Once your cumulative earnings for the year hit that amount, Social Security tax stops being withheld from your remaining paychecks. On a $2,157.69 biweekly paycheck, Social Security tax would be $133.78.
Medicare: 1.45% of all wages, with no cap. Using the same paycheck, that’s $31.29. If your total wages for the calendar year exceed $200,000, an additional 0.9% Medicare surtax kicks in on every dollar above that threshold, bringing your Medicare rate to 2.35% on those higher earnings.
Combined, FICA takes 7.65% of most paychecks. On $2,157.69, that’s $165.07.
Calculate Federal Income Tax Withholding
Federal income tax uses a marginal system, meaning different portions of your income are taxed at different rates. The amount withheld from each paycheck is an estimate of what you’ll owe for the year, spread across your pay periods. Your employer uses the information on your W-4 form (filing status, dependents, extra withholding) to determine how much to take out.
For the 2025 tax year, the marginal rates for a single filer are:
- 10% on the first $11,925 of taxable income
- 12% on $11,926 to $48,475
- 22% on $48,476 to $103,350
- 24% on $103,351 to $197,300
- 32% on $197,301 to $250,525
- 35% on $250,526 to $626,350
- 37% on everything above $626,350
For married couples filing jointly, each bracket is roughly double: the 10% bracket covers income up to $23,850, the 12% bracket runs to $96,950, and so on. These brackets apply to your taxable income, which is your gross income minus pre-tax deductions and the standard deduction.
A common misconception is that moving into a higher bracket means all your income is taxed at that rate. It doesn’t. Only the income within each bracket is taxed at that bracket’s rate. If you’re a single filer earning $55,000 in taxable income, you pay 10% on the first $11,925, 12% on the next chunk up to $48,475, and 22% only on the remaining $6,525.
Your employer doesn’t ask you to run these calculations yourself. Payroll software annualizes your per-period wages, applies the brackets and your W-4 elections, then divides the estimated annual tax back into per-period withholding. If the result looks wrong on your pay stub, adjusting your W-4 is the fix.
Don’t Forget State and Local Taxes
Most states impose their own income tax, and a handful of cities and counties do as well. Rates and structures vary widely. Some states use a flat percentage, others use graduated brackets similar to the federal system, and a few states have no income tax at all. Your pay stub will show a separate line for state withholding and, if applicable, local tax. These amounts are calculated the same way conceptually: a percentage of your taxable wages based on the rules where you live or work.
Subtract Post-Tax Deductions
After all taxes are calculated and withheld, any remaining deductions come out. These post-tax deductions include Roth retirement plan contributions (Roth 401(k) or Roth 403(b)), certain life insurance premiums, union dues, wage garnishments, and charitable donations made through payroll.
Post-tax deductions don’t reduce your taxable income, so they don’t lower your tax bill now. In the case of Roth contributions, the trade-off is that withdrawals in retirement are tax-free.
Arrive at Your Net Pay
Once every deduction is subtracted, what remains is your net pay, the amount deposited into your bank account. Here’s how the full sequence looks using a single filer earning $60,000 per year, paid biweekly:
- Gross pay per period: $2,307.69
- Pre-tax health insurance: -$150.00
- Taxable wages: $2,157.69
- Social Security (6.2%): -$133.78
- Medicare (1.45%): -$31.29
- Federal income tax withholding: -$176.00 (approximate, depends on W-4)
- State income tax: -$75.00 (varies by state)
- Post-tax Roth 401(k) contribution: -$150.00
- Net pay: $1,441.62
In this example, the worker takes home about 62% of gross pay. That’s a typical range for someone with moderate deductions. If you skip the retirement contribution and live in a state with no income tax, the percentage climbs. Add in higher tax brackets or bigger benefit premiums, and it drops.
How to Verify Your Pay Stub
Every pay stub breaks these calculations into labeled line items. Check yours against the math above to make sure the numbers add up. A few things to look for:
Compare your hours (if hourly) or salary allocation to what you actually worked. Overtime should appear as a separate line at 1.5 times your regular rate. Confirm that pre-tax deductions match the amounts you elected during benefits enrollment. Watch for the Social Security tax line late in the year: once your year-to-date earnings cross the wage base, that 6.2% withholding should drop to zero on subsequent checks, giving you a slightly larger net pay for the rest of the year.
If your federal withholding seems too high or too low compared to your actual tax liability, update your W-4 with your employer. The IRS offers a free Tax Withholding Estimator on its website that walks you through the adjustment based on your specific situation.