Every Paycheck Deduction, Explained

Your paycheck has two big numbers — what you earned, and what you actually take home. The space between them is filled with deductions. Some are required by law, some are optional benefits, and most have unfamiliar names. This guide walks through every common line so you know what each one is doing and why.

This is plain-English background. It is general information, not tax advice. For more vocabulary, see interest rate, and the Learn hub for related topics. For more on building a budget around your real take-home pay, our calculator can help.

Gross pay vs net pay

Your gross pay is the amount you earned before any deductions — your hourly rate times hours worked, your salary divided by pay periods, plus any bonuses or overtime.

Your net pay is the amount that lands in your bank account after every deduction comes out. It is also called take-home pay.

The difference between the two is the sum of the deductions in this guide.

Federal income tax

The biggest deduction for most workers. The IRS sets the federal income tax brackets — the rate that applies to each layer of your income — and your employer withholds an estimate based on the W-4 form you filled out at hire.

A few key facts:

• The U.S. uses marginal tax brackets. A higher bracket only applies to income above the bracket cutoff, not to all your income.
• The form W-4 is what tells your employer how much to withhold. You can update it anytime through your HR or payroll system.
• If your withholding is too low, you owe at tax time. If it is too high, you get a refund. The IRS at irs.gov has a free withholding estimator.

This deduction usually appears as "Fed Income Tax" or "Federal Withholding" on the pay stub.

FICA: Social Security and Medicare

Two federal payroll taxes are bundled together as FICA (Federal Insurance Contributions Act):

• Social Security tax. Funds the Social Security retirement, disability, and survivor programs run by the Social Security Administration at ssa.gov. Workers pay 6.2% of wages up to an annual cap that the SSA updates each year. Your employer pays an equal amount.
• Medicare tax. Funds Medicare. Workers pay 1.45% of all wages with no cap. Your employer pays an equal amount. High earners pay an additional 0.9% on wages above a threshold.

Together that is 7.65% of most workers' pay. If you are self-employed, you pay both halves — the IRS calls this self-employment tax.

These usually show up on the pay stub as "Social Security," "OASDI," or "FICA SS," and "Medicare" or "FICA Med."

State income tax

Most U.S. states have their own income tax with their own brackets and rules. A handful of states have no state income tax. The amount your employer withholds depends on the state form you filled out at hire, similar to the federal W-4.

Your state's department of revenue publishes the current rates and forms. Some states also tax bonuses and capital gains differently from regular wages.

This usually appears as your state's name plus "Income Tax" or "Withholding."

Local income tax

A smaller number of cities, counties, and school districts have their own income tax. These are most common in parts of the Northeast and Midwest. Rates are usually small (often under 3%), but they add up over a year.

If you are unsure whether you owe local tax, your city or county finance department's website will tell you.

401(k), 403(b), and other retirement contributions

If you contribute to a workplace retirement account, that money is taken out of your paycheck before it reaches your bank account.

• Traditional 401(k) or 403(b). Money goes in pre-tax, lowering your federal taxable income today. You owe taxes when you withdraw in retirement.
• Roth 401(k) or 403(b). Money goes in after-tax, so it does not lower today's taxable income. Qualified withdrawals in retirement are tax-free.
• Employer match. A separate line in some pay stubs showing what your employer is contributing. The IRS rules at IRS Retirement Plans cover annual contribution limits.

These deductions usually appear as "401(k)," "403(b)," "Roth 401(k)," or your plan's name.

HSA and FSA contributions

Two pre-tax health spending accounts that show up on many pay stubs:

• HSA (Health Savings Account). Available with high-deductible health plans. Contributions are pre-tax, the money grows tax-free, and qualified medical withdrawals are tax-free. The IRS sets annual limits.
• FSA (Flexible Spending Account). Available with many employer health plans. Contributions are pre-tax, but you usually have to use the money in the same plan year (with limited carryover or a grace period).

Both lower your federal taxable income. They typically appear as "HSA," "FSA," or "Health FSA" on the stub.

Health insurance premiums

If you get health insurance through your employer, your share of the premium is usually deducted pre-tax. The Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov and the U.S. Department of Health and Human Services have plain-English guides to comparing plans.

This deduction usually appears as "Medical," "Health Insurance," or your plan's name.

Dental and vision insurance

Separate premiums for dental and vision plans. These are usually small (often $5-$30 per pay period) and usually pre-tax.

These appear as "Dental" and "Vision" on the stub.

Group life insurance

Many employers offer a small amount of life insurance free of charge as a benefit. If you elected additional coverage on top of that, your premium is deducted from each paycheck. The cost goes up with age and coverage amount.

This usually appears as "Life Insurance," "Voluntary Life," or "Group Life."

Disability insurance

If your employer offers short-term and/or long-term disability insurance and you opted in, your premium is deducted each pay period. The Social Security Administration at ssa.gov provides limited disability coverage, so private disability through your employer fills an important gap for many households.

This usually appears as "STD" (short-term disability) or "LTD" (long-term disability).

Garnishments

In specific cases, an employer is required by court order or government agency to deduct a portion of wages and send it to a third party. Common examples:

• Child support.
• Unpaid federal or state taxes.
• Defaulted federal student loans.
• Court judgments for unpaid debts.

The Department of Labor at dol.gov limits how much can be taken from a single paycheck. If you receive a garnishment notice, the CFPB at consumerfinance.gov has plain-English guides on your rights and options.

Pre-tax vs after-tax deductions

Pre-tax deductions come out before federal income tax is calculated, lowering your taxable income. Common examples: traditional 401(k), HSA, FSA, most health insurance premiums.

After-tax deductions come out after taxes. Common examples: Roth 401(k), some life and disability premiums, garnishments, charitable payroll deductions.

The order matters because pre-tax deductions reduce the income that gets taxed in the first place.

How to read your pay stub

A typical pay stub has three sections:

• Earnings. Hours worked, hourly rate, salary, overtime, bonuses, paid time off.
• Deductions. Every line covered above.
• Year-to-date totals. Cumulative earnings and deductions for the year. Useful around tax time.

If a deduction does not look right, ask your HR or payroll team to walk through it. The IRS Tips for Students at irs.gov is a friendly starting point for first-time workers.

A note on advice

This is general information, not tax or financial advice. A CPA, an enrolled agent, or your employer's HR team can answer questions about your specific situation. The CFPB at consumerfinance.gov and MyMoney.gov at mymoney.gov keep free, vendor-neutral guides.

Numbers and rules in this article change every year — always check the latest from the IRS, CFPB, SSA, and your state's department of revenue or insurance.