Paycheck Deductions Explained: Where Your Money Goes

Federal income tax: the biggest line, and how brackets really work

Meet Jordan: single filer, $75,000 salary, Texas resident (no state income tax — we'll get to states later), contributing 6% ($4,500) to a traditional 401(k), paying $150/month ($1,800/year) for health insurance premiums.

First misconception to kill: Jordan is not "in the 22% bracket" in the way most people mean. The US uses marginal brackets — each chunk of income is taxed at its own rate. Using 2025 single-filer figures:

• Taxable income = $75,000 − $4,500 (pre-tax 401k) − $15,750 (2025 standard deduction) = $54,750
• First $11,925 taxed at 10% = $1,192.50
• Next $36,550 ($11,926–$48,475) taxed at 12% = $4,386.00
• Remaining $6,275 ($48,476–$54,750) taxed at 22% = $1,380.50
• Total federal income tax: $6,959

Jordan's marginal rate is 22% — every additional dollar earned is taxed at 22% — but the effective rate is $6,959 ÷ $75,000 = 9.3%. That gap between marginal and effective is the most misunderstood number in personal finance. When someone says "my raise pushed me into a higher bracket so I took home less," they're describing something mathematically impossible under marginal brackets. More income always means more take-home; it just means the last dollars are taxed harder.

The standard deduction does quiet heavy lifting here: $15,750 of Jordan's income is never taxed at all. And the 401(k) contribution shaved $4,500 off taxable income, saving about $990 in federal tax (22% of $4,500) — the government effectively co-funded Jordan's retirement.

FICA: the tax with no deductions and no mercy

Right below federal income tax sit two lines that never shrink, no matter your deductions:

Social Security: 6.2% on wages up to the annual wage base ($176,100 in 2025). Jordan pays 6.2% × $75,000 = $4,650. Note: the 401(k) contribution does not reduce Social Security tax. Pre-tax for income tax, fully taxable for FICA — one of the least-known quirks on the pay stub.

Medicare: 1.45% on all wages, no cap. Jordan pays 1.45% × $75,000 = $1,087.50. High earners (over $200,000 single) pay an additional 0.9% Medicare surtax, but Jordan's well under that.

Total FICA: $5,737.50 — 7.65% of gross, taken before any deductions help. Your employer matches this behind the scenes (another 7.65% you never see), which is why economists say your "real" compensation is higher than your salary and your "real" tax burden is too.

Self-employed readers: you pay both halves — 15.3% up to the wage base — which is why the self-employment tax stings so much. Employees split it with their employer and mostly never notice.

State and local taxes: the geographic lottery

Jordan lives in Texas: 0% state income tax. Move Jordan to California and the same $75,000 salary loses roughly another $3,000–$4,000 to state tax. Move to New York City and add city tax on top. Nine states have no income tax at all (Alaska, Florida, Nevada, New Hampshire — interest/dividends only historically — South Dakota, Tennessee, Texas, Washington, Wyoming); others top out above 10% on high incomes.

But "no income tax" states aren't tax-free — they collect elsewhere. Texas and Florida have above-average property taxes; Washington has high sales taxes; Tennessee taxes... well, Tennessee famously had the highest combined sales tax rates in the country. Your total tax burden depends on the whole mix, not one line.

Also watch for: local income taxes (common in Ohio, Pennsylvania, parts of Indiana and Kentucky — often 1–2.5%, sometimes not withheld automatically), state disability or family-leave insurance (California, New York, New Jersey, Rhode Island, and others withhold small percentages for these), and unemployment insurance employee portions in a few states. These hide in the "other deductions" area of pay stubs and surprise people who move states.

Pre-tax deductions: the lines that shrink the tax lines

These come out before income tax is calculated, which makes them the most valuable dollars on the stub:

Traditional 401(k): Jordan's $4,500 reduces federal (and usually state) taxable income dollar for dollar. At a 22% marginal rate, that's ~$990 in tax savings — an instant 22% return before any market growth.

Health insurance premiums: Jordan's $1,800/year in premiums is typically pre-tax under a cafeteria/Section 125 plan, saving another ~$400 in federal tax. Dental and vision premiums usually ride along pre-tax too.

HSA contributions: if Jordan had a high-deductible health plan, HSA contributions would be triple-tax-advantaged — pre-tax going in, tax-free growth, tax-free withdrawals for medical expenses. The best tax deal in the entire code, and chronically underused.

FSA contributions: pre-tax, but use-it-or-lose-it (with small rollover allowances). Good for predictable expenses like contacts or prescriptions; dangerous for vague "maybe I'll need it" amounts.

The order matters: pre-tax deductions reduce the income that brackets apply to. That's why maxing pre-tax contributions in high-earning years is standard advice — you're shaving dollars off your highest marginal rate.

Post-tax deductions: the lines that don't help your taxes

Roth 401(k): same retirement account, opposite tax treatment — contributed after tax, withdrawn tax-free in retirement. Doesn't reduce today's taxable income. The Roth-vs-traditional choice is a bet on your future tax rate versus today's.

After-tax extras: life insurance above $50,000 of employer coverage (the excess premium is taxable income to you, oddly), union dues, charitable payroll deductions, 529 contributions (no federal deduction, though many states offer one).

Garnishments and levies: child support, tax levies, creditor garnishments. These aren't optional and they sit outside the tax logic entirely — they reduce take-home without reducing taxable income, which feels doubly unfair because it is.

The take-home reconciliation: Jordan's full walk: $75,000 gross − $6,959 federal − $5,737.50 FICA − $4,500 401(k) − $1,800 insurance = $56,003.50 net, or about $2,154 biweekly. Every line accounted for. If your own stub doesn't reconcile this cleanly, something's mislabeled — or miscalculated.

Your one action: check your withholding this week

Here's the thing most people never do: verify that the federal withholding on their stub roughly matches their actual tax liability. Too little withheld and you owe a surprise bill (plus possible underpayment penalties) in April. Too much and you've given the government an interest-free loan — the average refund is around $3,000, which means millions of workers over-withhold by $250/month and celebrate getting their own money back.

Pull your last pay stub. Annualize the federal withholding (multiply by pay periods). Compare it to a quick estimate of your actual liability — the math we did for Jordan, with your numbers. If you're off by more than ~$1,000 in either direction, file a new W-4 with your employer. The W-4's worksheets handle this in about ten minutes, and adjusting mid-year is always allowed.

Second action, if you have one: confirm you're capturing any employer 401(k) match. Jordan's 6% contribution might be leaving match money on the table if the employer matches up to a higher percentage — that's a 50–100% instant return, and no tax line beats it.

Model your own salary with the US Salary & Paycheck Net Pay Calculator — enter your gross, state, and deductions to see your personal version of Jordan's walkthrough before your next pay raise negotiation.