Your offer letter says $75,000 a year, but your bank account tells a different story. The gap between gross pay and net pay – the number that actually lands in your account – comes from taxes, Social Security, Medicare, and any deductions your employer takes out. This guide walks through exactly how to calculate net pay from gross pay, with a complete worked example.
Want to skip the math? Try our free salary calculator to convert your salary into hourly, monthly, and take-home figures instantly.
Gross Pay vs Net Pay: What's the Difference?
Gross pay is the total amount you earn before anything is taken out. If your salary is $75,000 a year, your gross pay is $75,000. For hourly workers, it’s your hourly rate multiplied by hours worked, plus any overtime or bonuses.
Net pay – also called take-home pay – is what’s left after all deductions. These typically include:
- Federal income tax
- State and local income taxes (where applicable)
- Social Security tax (6.2% of wages up to $184,500 in 2026)
- Medicare tax (1.45% of all wages, plus 0.9% on high earners)
- Pre-tax deductions like 401(k) contributions and health insurance premiums
- Post-tax deductions like Roth 401(k) or wage garnishments
Step 1: Start with Gross Pay
Take your annual salary or compute it from your hourly wage. The standard full-time year is 2,080 hours (40 hours × 52 weeks). For example, $36.06 per hour × 2,080 = $75,000 gross per year.
If you earn bonuses or commissions, add those to gross pay too – they’re taxed as ordinary income.
Step 2: Subtract Pre-Tax Deductions
Pre-tax deductions reduce your taxable income, which lowers your income tax bill. Common ones:
| Deduction | Typical amount | Tax benefit |
|---|---|---|
| 401(k) contribution | 3-10% of salary | Reduces federal/state taxable income |
| Health insurance premium | $100-$400/month | Reduces federal/state/FICA taxable wages |
| HSA contribution | Up to $4,300 single (2026) | Reduces federal/state/FICA taxable wages |
| Dental/vision premiums | $20-$60/month | Reduces taxable income |
Example: on a $75,000 salary, contributing 5% ($3,750/year) to a 401(k) drops your federal taxable income to $71,250 before the standard deduction is even applied.
Step 3: Calculate Federal Income Tax
Subtract the standard deduction ($16,100 for single filers in 2026) from your adjusted gross income, then apply the marginal tax brackets. For our $75,000 example with a $3,750 401(k) contribution:
- Adjusted gross income: $71,250
- Taxable income: $71,250 − $16,100 = $55,150
- 10% on first $12,400 = $1,240
- 12% on $12,401-$50,400 ($38,000) = $4,560
- 22% on $50,401-$55,150 ($4,750) = $1,045
- Total federal income tax: $6,845
Step 4: Calculate FICA Taxes
FICA is flat and unavoidable for W-2 employees. On $75,000 of wages:
- Social Security: 6.2% × $75,000 = $4,650
- Medicare: 1.45% × $75,000 = $1,087.50
- Total FICA: $5,737.50
Note that the 401(k) contribution does not reduce FICA taxes – only income taxes.
Step 5: Subtract State Taxes and Other Deductions
State income tax varies widely. Nine states have no income tax at all, while top rates elsewhere reach 13%. For this example, assume a 5% effective state rate on $71,250 = $3,562.50. Add any post-tax deductions (say $1,200/year for supplemental insurance).
Complete Worked Example
| Line | Amount |
|---|---|
| Gross pay | $75,000.00 |
| Pre-tax 401(k) (5%) | −$3,750.00 |
| Federal income tax | −$6,845.00 |
| Social Security tax | −$4,650.00 |
| Medicare tax | −$1,087.50 |
| State income tax (5%) | −$3,562.50 |
| Other deductions | −$1,200.00 |
| Net pay (annual) | $53,905.00 |
| Net pay (monthly) | $4,492.08 |
| Net pay (biweekly) | $2,073.27 |
| Net pay (hourly equivalent) | $25.91 |
So $75,000 gross becomes roughly $53,905 take-home – about 72% of gross. Run your own numbers with our salary calculator to see every pay period breakdown.
Why Your First Paycheck Looks Smaller Than Expected
New hires are often surprised by their first paycheck. Beyond the taxes above, remember that employer withholding is an estimate – it may over- or under-withhold versus your actual annual liability, which is why you get a refund or owe money at tax time. Adjusting your W-4 can fine-tune this.
Frequently Asked Questions
Is net pay the same as take-home pay?
Yes. Net pay and take-home pay mean the same thing: gross pay minus all taxes and deductions.
What percentage of my paycheck goes to taxes?
For a middle-income single filer, roughly 20-30% of gross pay goes to federal, state, and FICA taxes combined. Higher earners in high-tax states can see 35% or more.
Do pre-tax deductions reduce FICA taxes?
Some do and some don’t. Health insurance premiums and HSA contributions reduce FICA taxable wages, but 401(k) contributions do not.
Why is my net pay different from my coworker’s if we earn the same?
Different W-4 withholdings, benefit elections, 401(k) rates, and state tax situations all change net pay even when gross pay is identical.
How can I increase my net pay without a raise?
Increase pre-tax contributions (401(k), HSA), check your W-4 for over-withholding, and review benefit elections during open enrollment.
*This article is for general information only and is not tax advice. Tax rules change yearly – confirm current figures with IRS guidance or a tax professional.*
