How Take-Home Pay is Calculated
Step-by-step:
1. Start with Gross Pay per pay period
2. Subtract Pre-tax Deductions (401k, Health Insurance, etc.) → Adjusted Gross
3. Estimate Federal Income Tax (based on filing status, dependents, and annual income projection)
4. Subtract FICA Taxes (Social Security 6.2% + Medicare 1.45%)
5. Subtract State Income Tax (based on rate you entered)
6. Net Pay = Gross Pay − All Taxes & Deductions
Key Deductions Explained
- 401(k) / Retirement: Pre-tax contributions that reduce your taxable income now.
- Health Insurance: Premiums paid through your employer are usually pre-tax.
- FICA Taxes: Social Security (up to wage base) + Medicare (no limit + additional Medicare tax for high earners).
- State Tax: Varies significantly by state. Use your state's actual rate for accuracy.
Important Notes
- This is an estimate. Actual withholding depends on your W-4 form and employer settings.
- Bonuses, commissions, and overtime may be taxed differently.
- Self-employed individuals pay both the employee and employer portions of FICA (Self-Employment Tax).
- For the most accurate results, use your latest pay stub and W-4 information.