Most employees glance at the net pay and ignore the rest of their pay stub. The deductions between gross and net represent 25 to 40 percent of your compensation and understanding them is essential for financial planning.
Gross to net breakdown
For a $5,000 semi-monthly gross pay ($120,000/year):
Gross pay: $5,000.00
Federal deductions:
Federal income tax: -$770.00 (varies by W-4)
Social Security (6.2%): -$310.00
Medicare (1.45%): -$72.50
State deductions:
State income tax: -$250.00 (varies by state)
State disability: -$50.00 (some states)
Pre-tax deductions:
401(k) (6%): -$300.00
Health insurance: -$200.00
HSA contribution: -$125.00
Dental/Vision: -$25.00
Net pay: $2,897.50
That is a 42% reduction from gross to net. Understanding each line helps you optimize.
Pre-tax vs. post-tax deductions
Pre-tax deductions (401k, health insurance, HSA) reduce your taxable income. A $300 pre-tax 401k contribution saves you about $75 in taxes (at a 25% marginal rate), so the effective cost is $225 out of pocket for $300 in retirement savings.
Post-tax deductions (Roth 401k, some insurance plans, garnishments) do not reduce taxable income. You pay tax first, then the deduction is taken.
The FICA cap
Social Security tax (6.2%) applies only to income up to $168,600 (2024). Earnings above that are exempt from Social Security tax. This means high earners see their net pay increase mid-year when they hit the cap.
For an employee earning $200,000/year, Social Security tax stops in late October. Their November and December paychecks are about $270 larger per bi-weekly period.
Medicare tax (1.45%) has no cap. An additional 0.9% Medicare surtax applies to earnings above $200,000.
For calculating your take-home pay with all federal and state deductions, I built a calculator at zovo.one/free-tools/pay-stub-calculator. Enter your gross pay, state, filing status, and deductions, and it shows the complete gross-to-net breakdown.
I'm Michael Lip. I build free developer tools at zovo.one. 500+ tools, all private, all free.
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