Why Your Paycheck Is Smaller Than Your Salary (and How to Predict It)

You accept a $70,000 job. Your first paycheck for two weeks of work arrives: $2,045. You expected closer to $2,692 (half of $70,000 ÷ 26 pay periods). Where did the missing $647 go? Into a stack of federal, state, and benefit deductions that most new employees have never had anyone explain line by line. Let’s do that now.

Gross vs net pay

Gross pay is what your offer letter says — the top-line salary or hourly rate before anything is taken out. Net pay (also called take-home pay) is what lands in your bank account after every deduction. For a typical US full-time employee, net pay is 60-80% of gross. The exact percentage depends on your state, income, benefits choices, and filing status.

The deductions in order

1. Federal income tax withholding

The biggest single line. Your employer uses IRS withholding tables plus the information on your Form W-4 (marital status, number of dependents, any additional withholding you requested) to estimate how much federal tax you will owe for the year and takes a proportional amount each paycheck. If the estimate is right, you owe nothing extra at tax time and get nothing back. If too much is withheld, you get a refund. If too little, you owe.

A single person earning $70,000 in a 0%-state-tax state typically has federal withholding of roughly 10-12% of gross per paycheck. Married filing jointly with one earner at the same salary is lower (often 6-9%) because of the higher married standard deduction.

2. Social Security tax (FICA)

6.2% of your gross pay, up to an annual wage base ($168,600 for 2024, adjusted yearly). Your employer matches this 6.2% behind the scenes, so the total going to Social Security is actually 12.4% — half visible, half hidden. Once your year-to-date earnings pass the wage base, this tax stops for the rest of the year. Self-employed people pay the full 12.4% themselves (offset partially by a deduction).

3. Medicare tax (FICA)

1.45% of your gross pay — no cap. Your employer matches. Above $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% applies to the employee only, not matched. This “Additional Medicare Tax” is why high earners see a small jump in their FICA withholding later in the year.

Combined Social Security + Medicare = 7.65% for most workers. This one rarely changes and is not negotiable.

4. State income tax withholding

Ranges from 0% (seven states: AK, FL, NV, SD, TN, TX, WY, plus mostly WA and NH) to around 10% effective in high-tax states like California and Oregon. For most working Americans, state tax is 3-7% of gross pay.

Some states use a flat rate. Others have their own progressive brackets. A few have reciprocity agreements (live in NJ, work in PA, pay NJ taxes) — if you live and work in different states, double-check which applies.

5. Local income tax

A handful of cities and counties have their own income tax: New York City (3-4%), parts of Ohio and Pennsylvania, Baltimore, and others. Usually small — 1-4% — but surprising the first time you see it.

6. Pre-tax benefit deductions

These reduce your taxable income, which is why they are labeled “pre-tax.” Common ones:

• Health insurance premium (your share) — often $100-500 per pay period for an individual, much more for family coverage
• Dental and vision premiums — usually $5-30 per pay period
• Health Savings Account (HSA) contribution if you are on a high-deductible plan
• Flexible Spending Account (FSA) contribution for medical or dependent care
• Traditional 401(k) contribution — the most popular pre-tax deduction
• Commuter benefits (transit pass, parking, up to IRS-set limits)

Every pre-tax dollar avoids federal and state income tax (and usually FICA for health-related ones). A $200 pre-tax health premium at a 30% combined rate only costs you about $140 of take-home pay.

7. Post-tax benefit deductions

These come out after tax has been calculated:

• Roth 401(k) contribution
• Life insurance premium above $50,000 coverage
• Disability insurance premiums (sometimes, depending on plan design)
• Garnishments (child support, back taxes, court orders)
• Union dues (if applicable)
• Employee stock purchase plan (ESPP) contributions

A worked example

Single employee, $70,000 salary, California, no kids, one month of biweekly pay:

Net is 65.5% of gross. In a zero-income-tax state, it would be closer to 72-75%.

Why W-4 settings matter

Your W-4 is not “set and forget.” Review it whenever:

• You get married or divorced
• You have a child
• Your spouse takes or leaves a job
• You take a major side gig
• You buy a house (if you itemize)
• You get a big raise or bonus

The IRS has a free Tax Withholding Estimator that tells you exactly what to put on your W-4 based on your current year. Most people over-withhold and treat their tax refund as forced savings — which is fine, but it means giving the government an interest-free loan.

How bonuses are taxed (not what you think)

Bonuses at work are typically withheld at a flat 22% federal rate (the “supplemental wage rate”) regardless of your actual tax bracket. If your marginal rate is lower than 22%, you will get the difference back at tax time. If it is higher, you will owe.

Common confusion: the 22% is just the withholding rate, not a special “bonus tax.” Bonuses are taxed at the same rate as ordinary income when your full-year return is filed. The aggressive withholding is just the IRS hedging.

Self-employed and contractors

If you are a 1099 contractor or self-employed, nothing is withheld. You receive the full gross amount, but you are personally responsible for paying quarterly estimated taxes (federal and state), plus the full 15.3% FICA (both halves, called self-employment tax). It is easy to under-budget for this and end up owing a shocking amount in April. Budget roughly 25-35% of gross self-employment income for taxes unless you are in a 0%-state and low federal bracket.

Run your own paycheck

Our paycheck calculator asks for salary, pay frequency, state, filing status, and pre-tax deductions, and returns your estimated net pay. Use it before accepting a job offer in a new state, before changing your 401(k) contribution, or before assuming your raise will feel as big as the gross-dollar figure suggests. You will make better decisions when you know which number actually lands in your account.