Gross pay, net pay and your pay stub
Concept
Gross pay is what you earn before anything comes out: hours times your hourly rate, or your salary divided by the number of paychecks. Net pay (take-home pay) is what actually lands in your bank account. Your budget is built on net pay, because that's the money you can spend or save.
Between the two sit the lines on your pay stub:
- Social Security: 6.2% of every dollar you earn, up to $184,500 a year in 2026. It funds retirement and disability benefits.
- Medicare: 1.45% of every dollar. It funds health insurance for people 65 and older. Together with Social Security this is called FICA, 7.65% of pay.
- Federal income tax: only on income above the standard deduction ($16,100 for a single person in 2026). Income above that is taxed in brackets: 10% on the first $12,400, 12% on the next $38,000, 22% after that, and higher rates on much larger incomes.
- State income tax: most states have one; nine have no tax on wages. Some cities and counties add a local income tax.
- Pre-tax deductions like health insurance or a 401(k), which the next lesson covers.
A pay stub also shows year-to-date totals, so you can check what you've earned and paid so far this year.
Worked example
A part-time job. Jordan, 16, earns $15 an hour and works 20 hours a week, paid every two weeks. One paycheck:
| Line | Amount |
|---|---|
| Gross pay (40 hours x $15) | $600.00 |
| Social Security (6.2%) | −$37.20 |
| Medicare (1.45%) | −$8.70 |
| Federal income tax | $0.00 |
| Net pay | $554.10 |
Jordan's yearly pay is $15,600, which is less than the $16,100 standard deduction, so Jordan owes no federal income tax. (In a state with an income tax that starts at a low income, a little state tax would come out too.)
A first full-time job. A few years later Jordan earns $45,000 a year in Illinois, paid every two weeks. Gross pay is $1,730.77 a paycheck. Federal income tax is $123.85, Social Security $107.31, Medicare $25.10, and Illinois income tax (a flat 4.95%) $80.10. Net pay is $1,394.41. About 19% of gross pay goes to taxes, so a "$45,000 job" puts about $36,250 a year in the bank.
Your numbers, and the effect
Enter your pay (or the pay for a job you're thinking about), your state, and how often you're paid. If you have a pay stub, compare it with the calculator line by line.
You're in the free preview. Change any number to see the effect.
Switch your state between one with no income tax (such as Texas or Florida) and one with an income tax. Then raise the pay and watch federal income tax grow faster than pay once you pass the standard deduction: that's the bracket system at work.
Checkpoint
Answer at least 70% correctly to unlock the next lesson. Retakes are unlimited, and every answer is explained.
Common questions
What's a W-4?
A form you fill out when you start a job. It tells your employer how much federal income tax to withhold from each paycheck. If you expect to earn less than the standard deduction for the year, the form lets you claim exemption from withholding; otherwise your employer withholds as if you'll earn the same amount all year.
Why is too much tax sometimes taken out?
Withholding is an estimate. If more was withheld than you owe, you get the difference back as a refund when you file a tax return. Many students who work part-time get all their federal income tax back, but never their Social Security and Medicare.
What's the difference between salary and hourly pay?
Hourly pay is a rate times the hours you work, so it changes with your schedule. A salary is a fixed yearly amount split across paychecks. Either way, your pay stub starts with gross pay.
Do I have to file a tax return?
It depends on how much you earn and how. If income tax was withheld, filing is the only way to get a refund of anything you didn't owe. The IRS website has a tool that tells you whether you need to file.
Still stuck? Search the help center or the glossary.