How to Read Your Paycheck, Line by Line

Your paycheck is smaller than your salary because of four kinds of deduction: federal income tax withholding, Social Security and Medicare (together called FICA), state and local income tax, and anything you chose to put aside, such as a 401(k). Only FICA is a fixed percentage. Federal withholding is an estimate based on the Form W-4 you gave your employer, so it can be wrong in either direction, and it's the line most worth checking. This guide walks through each line using a real example, then shows which ones you can actually change.

It's written for salaried and hourly W-2 employees. If you're self-employed or a contractor paid on a 1099, nothing is withheld for you and the rules below don't apply in the same way.

A $60,000 paycheck, taken apart

Here's what our take-home pay calculator shows for a single filer earning $60,000 in 2026, paid every two weeks, putting 5% into a traditional 401(k), in a state with no income tax. The calculator works on yearly figures divided by 26, so your employer's payroll system may differ by a few dollars.

Two things stand out. The federal income tax line is smaller than you might expect: $4,660 is under 8% of salary, because the first $16,100 is covered by the 2026 standard deduction and much of the rest is taxed at 10% and 12%. And FICA, at $4,590 a year, is almost as big as income tax.

The lines set by law: Social Security and Medicare

Social Security is 6.2% of your wages and Medicare is 1.45%. According to the Social Security Administration, the 6.2% stops once your 2026 wages pass $184,500, which is the most anyone pays: $11,439. Medicare has no cap. The IRS adds an Additional Medicare Tax of 0.9% on wages above $200,000 for single filers ($250,000 for married couples filing jointly).

You can't adjust these. But one detail changes how you should read your stub: your 401(k) contribution does not reduce them. The IRS explains in Topic 424 that traditional 401(k) deferrals skip federal income tax withholding but are still wages for Social Security and Medicare. That's why, in the example, Social Security is 6.2% of the full $60,000, not of $57,000.

The line that's a guess: federal withholding

Federal withholding is not your tax bill. It's your employer's estimate of it, worked out from your Form W-4. The IRS says in Topic 753 that the W-4 tells your employer your filing status, adjustments for multiple jobs, credits, other income, deductions and any extra amount to withhold. If you never handed one in, your employer must withhold as if you're single with no other entries.

This is where paychecks go wrong. Common causes:

• Two jobs, or two earners. Each employer withholds as if its paycheck is your only income, so the low brackets can get applied twice. If you or your spouse didn't complete Step 2 of the W-4, you can end up owing in April.
• A life change you never reported. Marriage, a new child or a big raise can all move your real tax well away from what's being withheld.
• Bonuses. Under IRS Publication 15, employers can withhold a flat 22% on supplemental wages such as bonuses. That's withholding, not a special bonus tax. If your real top rate is 12%, the extra is credited when you file.

A big refund isn't a win. It means you lent the government money at 0% all year. A large bill can bring penalties. The aim is to land close to zero.

The lines you choose: 401(k) and other pre-tax deductions

Your 401(k) line is the only deduction that stays yours. It also costs less than it looks. In the example, going from no 401(k) to 5% moves $3,000 into your account but cuts take-home pay by only $2,640 a year, because federal income tax falls by $360. The calculator shows that at 0% contributions the same person takes home $50,390; at 5% it's $47,750.

If your employer matches, check that you're contributing enough to get all of it before you look at any other savings goal. Our 401(k) match calculator shows what you're leaving on the table at your current rate.

The state tax line depends entirely on where you live and work. Rates and rules vary by state, and some cities add their own tax. In the calculator, adding a flat 5% state rate to the example drops take-home pay from $47,750 to $44,900.

What to do with this

The 401(k) and withholding lines are the ones you control. The rest you just need to understand. Here's a short plan.

1. Next 10 minutes: open your latest pay stub and find year-to-date federal income tax. Compare it with last year's return: is it on track?
2. Today: run the IRS Tax Withholding Estimator. The IRS says it takes about 25 minutes and needs your latest pay stubs. If it recommends a change, it produces a filled-in W-4.
3. This week: give the new W-4 to payroll. The IRS gives employers until the first payroll period ending on or after 30 days from receiving it, so allow a month or so before you judge the result.

Then decide where the money goes. Put your take-home figure into the 50/30/20 budget calculator, not your salary. A budget built on gross pay spends money you never receive.

When this advice doesn't fit

Withholding checks matter less if you have one job, no side income and take the standard deduction; the default W-4 handles that simple case reasonably well, and a small refund or bill is normal. They matter a lot more if you have gig income, investment income, or a working spouse, because none of that shows up in your employer's calculation. If you're self-employed on the side, withholding alone may not cover the tax, and you may need to make estimated payments instead. At that point a tax professional is worth an hour of your time.

One more limit: this example assumes a single filer with no state tax, no health premiums and no other pre-tax deductions. Your stub will have more lines. Use the calculator with your own figures before you change anything.

Sources

1. Internal Revenue Service: Topic no. 753, Form W-4, Employee's Withholding Certificate
2. Internal Revenue Service: Topic no. 424, 401(k) plans
3. Social Security Administration: Contribution and Benefit Base
4. Internal Revenue Service: Tax Withholding Estimator