Gross Pay vs. Net Pay: Where Your Money Goes Between Paycheck and Bank

Why Your Paycheck Is Less Than Your Salary

If you earn $75,000/year, your gross pay per biweekly paycheck is $2,884.62. But your bank account probably sees $1,900–$2,200 — sometimes significantly less. The gap between gross and net isn't money disappearing; it's a precise set of deductions, each with its own purpose and rules.

Mandatory Tax Deductions

Federal Income Tax Withholding

Based on your W-4 elections and filing status. Uses IRS withholding tables applied to your taxable wages each pay period. For a single filer at $75,000, federal withholding is roughly $8,000–$10,000/year depending on W-4 adjustments — about $308–$385 per biweekly paycheck.

State Income Tax

Varies significantly by state. California (up to 12.3% + 1% mental health tax), New York (up to 10.9%) vs. zero-income-tax states like Texas, Florida, Nevada, Washington. Same $75,000 salary has a dramatically different take-home depending on where you live.

Social Security Tax (OASDI)

6.2% of gross wages up to $176,100 (2025 wage base). On a $75,000 salary: $4,650/year, or $178.85 per biweekly paycheck. Capped — once you hit the wage base mid-year, this stops being withheld.

Medicare Tax

1.45% of all wages, no cap. $75,000 salary = $1,087.50/year, or $41.83 per biweekly paycheck. An additional 0.9% applies to wages above $200,000 ($250,000 for MFJ).

Pre-Tax Benefit Deductions (Reduce Taxable Income)

These come out of your paycheck before taxes are calculated, lowering your taxable wage:

Health/Dental/Vision Insurance Premiums

Your share of employer-sponsored health insurance. Average employee contribution: $150–$400/month depending on plan and coverage tier (employee-only vs. family).

Traditional 401(k) or 403(b) Contributions

Pre-tax retirement contributions reduce Box 1 on your W-2. Contributing $500/biweekly pay period ($13,000/year) reduces your taxable income by $13,000 — saving roughly $2,860 in federal income tax at the 22% bracket.

Health Flexible Spending Account (FSA)

Pre-tax contributions for healthcare expenses. 2025 limit: $3,300. Reduces taxable income dollar-for-dollar.

Dependent Care FSA

Pre-tax contributions for childcare. Up to $5,000 per household ($2,500 if MFS). One of the most valuable pre-tax benefits for parents.

HSA Contributions (if on HDHP)

Health Savings Account contributions are triple tax-advantaged: pre-tax going in, tax-free growth, tax-free for qualified medical expenses. 2025 limit: $4,300 individual, $8,550 family.

Commuter Benefits

Pre-tax transit and parking. Up to $325/month each for transit passes and parking in 2025.

After-Tax Deductions

These come out after taxes are calculated — no tax savings, but money goes toward specific purposes:

• Roth 401(k) contributions (after-tax; tax-free in retirement)
• Life insurance above employer-provided amounts
• Garnishments (court-ordered wage deductions)
• Union dues
• Voluntary additional insurance (disability, accident, critical illness)

Reading Your Net Pay Calculation

Your pay stub shows the math: Gross Pay → minus Pre-tax deductions = Taxable wages → minus Taxes = After-tax pay → minus After-tax deductions = Net Pay.

Upload your pay stub to paystubparser.com to extract every line — gross, deductions, taxes, and net — into structured data for verification, recordkeeping, or income documentation.