Gross vs Net Pay: Where Your Paycheck Actually Goes

The number in your offer letter is not the number that arrives in your account. Between the two sit four separate deductions, calculated in a specific order, each with its own rules. Understanding the order is what makes the final figure predictable rather than mysterious.

We will follow a single example the whole way down: $30 an hour, 40 hours a week, filing single, living in Ohio. That is $62,400 a year gross and $51,319 net — an effective tax rate of 17.76%.

Step 1 — Pre-tax deductions come out first

Traditional 401(k) contributions, HSA deposits, and most employer health insurance premiums are subtracted before any tax is calculated. This is why they are worth more than their face value: a dollar contributed to a 401(k) is a dollar that never enters your taxable income at all.

In our example, contributing $5,000 to a 401(k) reduces annual take-home pay by only $3,880 rather than the full $5,000. The difference — about $1,120 — is tax you did not pay. The money still left your paycheck, but it went into your retirement account rather than to the IRS.

Step 2 — FICA is taken on almost everything

FICA covers Social Security and Medicare. It is a flat tax with no brackets and no standard deduction, which is why low earners often pay more in FICA than in federal income tax.

Two details matter. Social Security stops at the wage base — $184,500 for 2026 — so earnings above that are not subject to the 6.20%. Medicare has no ceiling, and adds a further 0.90% above $200,000. This is why effective tax rates can dip slightly as income crosses the Social Security cap before climbing again.

Step 3 — Federal income tax, one bracket at a time

The single most common misunderstanding about income tax is that moving into a higher bracket taxes your whole income at that rate. It does not. Brackets are marginal: each slice of income is taxed at its own rate, and only the portion above a threshold is taxed at the higher one.

Before any of that, the standard deduction removes the first $16,100 from taxable income entirely for a single filer. So our $62,400 salary is taxed as if it were $46,300.

Worked through for our example, that produces $5,308 in federal income tax — roughly 8.5% of gross pay, even though the top bracket touched is higher than that. The gap between your marginal rate and your effective rate is the whole point of a progressive system.

Step 4 — State, and sometimes city

State tax runs on its own rules: its own brackets, its own standard deduction, and in nine states no income tax at all. Ohio charges $1,000 on this salary. The same salary in Texas would owe nothing at state level; in California or Hawaii it would owe considerably more.

On top of that, some cities levy their own income tax — a deduction most calculators skip entirely. We cover which cities and how much in the guide to city income taxes.

Putting it together

So $62,400 gross becomes $51,319 net. The $11,081 difference is not one deduction but four, and the largest one here is FICA rather than income tax — which is typical at this income level and surprises most people who assume income tax dominates.

Why your actual paycheck may still differ

Withholding is an estimate, not a settlement. Your employer withholds based on the W-4 you filed, which is a forecast of your full-year situation. If it is wrong — because you changed jobs mid-year, have a second income, or claimed allowances that no longer match reality — you settle up at filing time as a refund or a bill.

Beyond that, post-tax deductions like Roth 401(k) contributions, union dues, garnishments, and some insurance products come out after tax and will not appear in any pre-tax calculation. And pay frequency changes the arithmetic slightly: a bi-weekly schedule delivers 26 paychecks a year, so two months each year contain three of them.

To see these numbers for your own wage and state, including pre-tax contributions and city tax, run it through the calculator.