How your paycheck actually gets calculated

1. Gross pay per period

If you're salaried, your annual salary is divided by however many paychecks you get in a year — 52 for weekly, 26 for bi-weekly, 24 for semi-monthly, or 12 for monthly. Hourly employees multiply their rate by hours worked in the period instead. This is gross pay: the number before anything is subtracted.

2. Pre-tax deductions come out first

Before any tax is calculated, your employer subtracts pre-tax benefits: traditional 401(k) or 403(b) contributions, and section 125 "cafeteria plan" items like health, dental, and vision premiums or FSA contributions. This matters because it shrinks the income that taxes are calculated on — a dollar contributed to a traditional 401(k) is a dollar the IRS doesn't see this year.

One wrinkle: 401(k) contributions reduce income for federal and (usually) state tax, but not for Social Security or Medicare. Section 125 benefits typically reduce all four.

3. Federal income tax: a progressive bracket system

The U.S. uses marginal tax brackets. Your income doesn't get taxed at one flat rate — instead, each slice of it is taxed at the rate for that slice. For 2026, a single filer pays 10% on the first $12,400 of taxable income, then 12% on the next chunk up to $50,400, and so on up to 37% on income above $640,600.

Before any of that applies, you subtract the standard deduction — $16,100 for single filers, $32,200 for married filing jointly in 2026 — from your income. Only what's left is "taxable income."

This is also why a raise can never shrink your paycheck: only the income inside the new, higher bracket is taxed at the higher rate. Everything below it stays taxed exactly as before.

4. FICA: Social Security and Medicare

Separately from income tax, every paycheck is hit with FICA: 6.2% for Social Security and 1.45% for Medicare, both matched by your employer. Social Security only applies up to an annual wage base — $184,500 for 2026 — after which it stops for the rest of the year. Medicare has no cap, and an extra 0.9% kicks in on wages above $200,000 (single) or $250,000 (married).

5. State (and sometimes local) tax

Nine states charge no income tax at all. Some, like Illinois and Pennsylvania, use one flat rate for everyone. Others, like California and New York, run their own progressive bracket systems layered on top of the federal ones. A few cities — New York City chief among them — add a separate local income tax as well.

6. What's left is net pay

Subtract every deduction above from gross pay, and what remains is your net pay — the actual number that reaches your bank account.