Your True Take-Home Pay

How Your Take-Home Pay Is Calculated

The calculation follows four steps, applied in this order:

Step 1 — Pre-tax deductions. Contributions to a 401(k), HSA, or FSA come out of your gross pay first. These reduce the amount the IRS actually sees as income, so every dollar you put in a 401(k) saves you more than a dollar in taxes.

Step 2 — Federal income tax. The standard deduction ($15,000 single / $30,000 married joint in 2025) is subtracted from your adjusted gross income. What remains flows through the progressive bracket table — you only pay each rate on the slice of income that falls within it, never on your whole salary at once.

Step 3 — FICA (Social Security + Medicare). These are flat-rate taxes: 6.2% for Social Security (on the first $176,100 of wages) and 1.45% for Medicare (on all wages). Your employer quietly matches both amounts — you won't see that on your stub, but it's part of your total compensation cost.

Step 4 — State income tax. Applied to your taxable wages using your state's own brackets and standard deduction rules. Some states mirror federal treatment; others have flat rates or no tax at all.

Common Deductions Explained

401(k) / 403(b). Traditional contributions are pre-tax — they reduce your taxable income dollar-for-dollar. The 2025 employee limit is $23,500 (or $31,000 if you're 50+). Because they lower your federal and state taxable income, the real cost to your take-home is less than the amount you contribute.

HSA (Health Savings Account). Available only with a qualifying high-deductible health plan (HDHP). Contributions are pre-tax and roll over year to year — unlike an FSA. The 2025 limit is $4,300 for self-only coverage, $8,550 for a family.

FSA (Flexible Spending Account). Another pre-tax deduction for healthcare costs, but subject to use-it-or-lose-it rules each plan year. The 2025 limit is $3,300. Dental and vision expenses often qualify.

Health insurance premiums. If your employer sponsors a group plan, your share of the premium is typically deducted pre-tax through a Section 125 cafeteria plan — so it also reduces your taxable wages.