How to calculate your take-home pay: from gross salary to net paycheck

"I make $70,000 a year" and "I have $70,000 to spend" are two very different statements. Between the two sits a stack of withholdings that most people never fully see. Learning how to calculate your take-home pay turns a fuzzy salary number into a concrete monthly figure you can actually budget around — and it explains why your first paycheck at a new job is often smaller than you hoped.

The whole process is just subtraction in a specific order. Get the order right and the math is straightforward.

Gross pay vs net pay: what the words mean

Gross pay is your full wage before anything is removed — your annual salary, or your hourly rate times hours worked. Net pay, the everyday term being take-home pay, is what is left after every tax and deduction comes out. The difference between them is usually 20% to 35% of gross for a typical US worker, and the exact figure depends on four things: federal income tax, FICA, state income tax, and your pre-tax benefit choices.

The five steps from gross to net

Here is the sequence. The order matters because pre-tax deductions come out before income tax is calculated, which lowers the tax itself.

1. Start with gross pay for the period (or the year).
2. Subtract pre-tax deductions — traditional 401(k), most health premiums, HSA/FSA — to get your taxable wages.
3. Subtract federal income tax withholding, based on your W-4 and the marginal brackets.
4. Subtract FICA — 6.2% Social Security + 1.45% Medicare = 7.65%.
5. Subtract state (and any local) income tax. What remains is your net pay.

Step 2 in detail: pre-tax deductions

This is the step people overlook, and it works in your favour. A traditional 401(k) contribution, your share of an employer health insurance premium, and money you route into an HSA all typically come out of pay before federal income tax (and usually FICA, for premiums and HSA) is figured. Because they reduce your taxable wages, a dollar contributed costs you less than a dollar of take-home pay. Put $300 a month into a pre-tax 401(k) in the 22% bracket and your paycheck only drops by roughly $234 — the other $66 was tax you would have paid anyway.

Step 3 in detail: federal income tax and your W-4

The US uses marginal tax brackets: the first slice of taxable income is taxed at 10%, the next at 12%, then 22%, and so on. Only the income inside each band is taxed at that band's rate, so being "in the 22% bracket" does not mean all your income is taxed at 22% — your effective rate is lower. Your employer estimates this withholding from the Form W-4 you filled out: your filing status, dependents, and any extra withholding you requested. A poorly tuned W-4 is the single most common reason a paycheck surprises someone.

Step 4 in detail: FICA

FICA funds Social Security and Medicare and is refreshingly simple — a near-flat 7.65% for most employees:

• Social Security: 6.2% of wages, but only up to an annual wage base limit (it adjusts each year). Earnings above the cap are not taxed for Social Security.
• Medicare: 1.45% of all wages with no cap. High earners pay an extra 0.9% surtax above certain thresholds.

Your employer quietly pays a matching share, but the 7.65% on your stub is yours.

Step 5 in detail: state income tax

State tax varies enormously. A handful of states — including Florida, Texas, Tennessee, Nevada, Washington, Wyoming, South Dakota and Alaska — levy no state income tax on wages, so a worker there keeps more of the same salary. Others run flat rates, and several use progressive brackets that can reach 9% or more at higher incomes. Some cities add a local tax on top. Always plug in your own state.

A full worked example: $70,000 salary in a tax state

Let's take a single filer earning $70,000 a year, contributing 5% to a traditional 401(k), paying $1,800/year in pre-tax health premiums, and living in a state with a flat 4.5% income tax. Figures are rounded and illustrative — not a tax filing.

Line	Annual	Monthly
Gross salary	$70,000	$5,833
− 401(k) (5%, pre-tax)	−$3,500	−$292
− Health premiums (pre-tax)	−$1,800	−$150
= Taxable wages	$64,700	$5,392
− Federal income tax (est.)	−$6,900	−$575
− Social Security (6.2%)*	−$4,135	−$345
− Medicare (1.45%)*	−$967	−$81
− State income tax (4.5%)	−$2,912	−$243
= Net take-home pay	$49,786	$4,149

*FICA is generally levied on wages after pre-tax health premiums but before 401(k) deferrals, so the FICA base here is $68,200. Federal tax is a rough estimate using the standard deduction and 2024-style brackets. Illustrative only — your real numbers depend on current rates, your W-4, exact benefits and state rules.

So the $70,000 salary becomes about $49,800 net — roughly $4,150 a month in the bank. That is an effective "all-in" deduction of about 29%. Notice the order paid off: the $5,300 of pre-tax deductions shaved real tax off the bill, and $3,500 of that is still yours, just sitting in a retirement account instead of your checking account.

A quick deductions reference table

If you are reading a confusing pay stub, this is the cheat sheet for what each line usually is and how it is taxed.

Deduction	Typical rate / amount	Lowers taxable income?
Federal income tax	Marginal 10–37%	—
Social Security	6.2% (up to wage cap)	No
Medicare	1.45% (no cap)	No
State income tax	0% to ~13%	—
Traditional 401(k)	Your chosen %	Yes (income tax)
Health premiums	Plan-dependent	Yes (usually income + FICA)
HSA contribution	Your chosen amount	Yes (usually income + FICA)

Hourly, bonuses and other wrinkles

Hourly and salaried both work the same way

If you are paid hourly, your gross for the period is simply rate × hours (plus any overtime, often at 1.5×). From there the five steps are identical. The only difference is that an hourly worker's gross can vary week to week, so net pay varies too.

Bonuses are usually withheld harder

A bonus is taxable income, but employers often withhold federal tax on it at a flat supplemental rate rather than your normal bracket. That can make a bonus check feel heavily taxed. The good news: it is only withholding — if too much was taken, you get it back at tax time. Your true tax owed still depends on your total annual income.

Pay frequency changes the per-check number, not the total

Weekly, bi-weekly, semi-monthly and monthly schedules split the same annual net into different-sized pieces. Bi-weekly pay (26 checks) produces two "extra" paychecks a year compared with semi-monthly (24), which is why some months feel richer than others.

Why this number matters beyond budgeting

Lenders and landlords care about your take-home pay too. Mortgage affordability and rent limits are often framed against net or gross income, and your debt-to-income ratio drives how much you can borrow. If you are sizing up a home purchase, our guide on what income you need to buy a house builds directly on the net-pay idea, and the DTI calculator and home affordability calculator let you test the limits with your real figures.

Frequently asked questions