What is the difference between gross pay and net pay?
Every pay stub follows the same order, even if the labels change from one payroll company to another:
- Gross pay: your salary or hours times your rate, plus overtime, tips and bonuses.
- Pre-tax deductions: traditional 401(k), and section 125 items such as most employer health plans.
- Federal income tax (often "FIT" or "Fed W/H").
- Social Security ("OASDI" or "SS") and Medicare ("MED"). Together they are FICA.
- State and local income tax, where your state has one.
- After-tax deductions: Roth 401(k), some insurance, garnishments.
- Net pay: what is left.
Next to each line, the year-to-date column ("YTD") adds up everything since January 1. It is the column that ends up on your Form W-2.
Federal income tax withholding is an estimate from your W-4
Your employer does not know your real tax. It estimates it from your Form W-4 with the 2026 tables in IRS Publication 15-T:
- Your taxable pay for the period is annualized: multiplied by your number of paychecks.
- If the Step 2 box (two jobs) is not checked, $8,600 is subtracted, or $12,900 if you chose married filing jointly.
- The yearly tax from the table is divided back by the number of paychecks, minus any credits you claimed in Step 3, plus any extra you asked for in Step 4(c).
Withholding is a prepayment. Your real tax is settled on your return: if more was withheld than you owe, you get a refund. The 2026 W-4 also lets you account for the new deductions for tips, overtime and seniors.
Social Security and Medicare
These two lines follow fixed rates, per IRS Topic 751 and Publication 15:
- Social Security: 6.2% of your wages, up to $184,500 in 2026. After that, the line stops for the rest of the year. In 2027 the cap rises to $192,300, per the SSA.
- Medicare: 1.45% of all your wages, with no cap. Once your wages with one employer pass $200,000 in the year, it withholds an extra 0.9% Additional Medicare Tax on the excess.
Your employer pays the same 6.2% and 1.45% on top, but that share is not on your stub as a deduction.
Pre-tax deductions: 401(k) versus health insurance
Pre-tax does not mean the same thing for every line:
- A traditional 401(k) lowers the pay used for federal income tax withholding, but not for Social Security and Medicare.
- Section 125 deductions, such as most employer health, dental and vision plans, lower both.
- A Roth 401(k) is taken after tax and lowers neither.
That is why your W-2 can show one amount of wages for income tax and a different one for Social Security and Medicare.
A $60,000 paycheck, line by line
A single filer earns $60,000 a year, paid every two weeks, with a standard W-4. We checked these figures with our paycheck calculator. The second column adds $150 to a traditional 401(k) and $100 of pre-tax health insurance per paycheck.
| Line | No deductions | 401(k) and health plan |
|---|---|---|
| Gross pay | $2,307.69 | $2,307.69 |
| Pre-tax deductions | $0.00 | $250.00 |
| Federal income tax | $193.08 | $163.08 |
| Social Security | $143.08 | $136.88 |
| Medicare | $33.46 | $32.01 |
| Net pay | $1,938.08 | $1,725.73 |
The $193.08 comes from the 2026 table: $60,000 − $8,600 = $51,400 a year, and $1,240 plus 12% of the amount over $19,900 is $5,020, divided by 26. Putting $250 aside before tax costs only $212.35 of take-home pay. There is no state tax here; add yours if your state taxes wages.
Check your stub before the year ends
Three quick checks catch most problems:
- Social Security should be 6.2% of your Social Security wages, and Medicare 1.45%, unless you passed $184,500 or $200,000.
- Your filing status and W-4 answers should match your life now: a new job, a spouse’s job or a new child all change them.
- Compare your YTD federal withholding with your expected tax in the income tax calculator. If it falls short, a new W-4 fixes it for the rest of the year.
If a line looks wrong, ask your payroll department first: they can show you the W-4 on file.
Worked examples by wage: $15 an hour a year, $20 an hour, with the paycheck for each pay schedule, and $25 an hour.
Official sources
- IRS Publication 15-T (2026): Federal Income Tax Withholding Methods · Worksheet 1A and 2026 annual percentage method tables; 2026 Form W-4
- IRS Publication 15 (2026): Employer's Tax Guide · 2026 Social Security wage base $184,500
- IRS Topic No. 751: Social Security and Medicare Withholding Rates · Social Security and Medicare rates; Additional Medicare Tax withholding
- SSA: 2027 Cost-of-Living Adjustment (COLA) Fact Sheet · 2027 taxable maximum $192,300