Understanding Your Paycheck: Gross vs. Net, Deductions Explained
Ever wonder where a big chunk of your salary actually goes before it hits your bank account? Here's the plain breakdown.
Gross pay vs. net pay
Gross pay is your full salary or wages before anything is taken out — the number usually quoted in a job offer. Net pay (sometimes called "take-home pay") is what actually lands in your bank account after all deductions. The gap between the two is often larger than people expect.
Common deductions, in roughly the order they're taken
| Deduction | What it is |
|---|---|
| Federal income tax | Withheld based on your W-4 elections and tax bracket |
| State/local income tax | Varies by location — some states have none at all |
| Social Security | A fixed 6.2% (in the US, up to an annual income cap) |
| Medicare | A fixed 1.45% (no income cap) |
| 401k contributions | Pre-tax (traditional) or post-tax (Roth), if you've elected to contribute |
| Health insurance premiums | Your share of the cost, if enrolled through your employer |
| HSA/FSA contributions | Pre-tax, if you've elected to contribute |
Why your W-4 elections matter
The W-4 form determines how much federal tax gets withheld from each paycheck. Under-withholding means a larger bill at tax time; over-withholding means a bigger refund but less usable money throughout the year — essentially an interest-free loan to the government. Adjusting this to match your actual tax situation can meaningfully change your paycheck amount without changing your actual take-home total for the year.
Why budgeting off gross pay is a common mistake
Since deductions can easily total 20-35% of gross pay depending on your situation, budgeting based on your stated salary rather than your actual net pay is one of the most common ways people end up feeling like their money "disappears" — the money was never actually available to spend in the first place.
Grade My Finance already uses your real take-home number
Our calculator asks for monthly income after-tax specifically, so your grade reflects what you actually have to work with — not an inflated gross figure.
Check My Grade →Frequently asked questions
Why is my paycheck different every time if my salary is fixed?
Common causes include changes in health insurance costs, bonus payments taxed differently, adjustments to retirement contributions, or a different number of pay periods in a given month.
Should I contribute pre-tax or post-tax (Roth) to my 401k?
This depends on whether you expect to be in a higher or lower tax bracket in retirement — see our guide on Roth vs. Traditional accounts for a fuller breakdown.