Gross salary is the number on your offer letter. Take-home pay is the number you actually plan your life around. The gap between them — often 25–40% — is predictable once you understand what each deduction is and in what order it happens. Here is the 2026 breakdown.
What changed in 2026
- Federal income tax brackets adjusted for inflation. The IRS updates brackets annually; verify the current thresholds at IRS.gov. The marginal rates (10%, 12%, 22%, 24%, 32%, 35%, 37%) have not changed structurally, but the income ranges shift.
- FICA wage base for Social Security also adjusts each year (historically around $160,000–$170,000+). Earnings above that cap are not subject to the 6.2% SS tax, only the 1.45% Medicare tax (which has no cap).
- Additional Medicare tax (0.9%) applies to wages over $200,000 (single) or $250,000 (married filing jointly) — relevant for higher earners.
- Standard deduction increased — affects how much of your income is taxable when you file, though withholding is based on your W-4 elections, not your actual deduction.
The deductions in order
Every dollar of gross pay runs through this sequence:
| Step |
Deduction |
Pre- or post-tax? |
| 1 |
401(k) / 403(b) traditional contributions |
Pre-tax |
| 2 |
Health insurance premiums (employer plan) |
Pre-tax |
| 3 |
FSA or HSA contributions (payroll) |
Pre-tax |
| 4 |
Other pre-tax benefits (commuter, dental, vision) |
Pre-tax |
| 5 |
Federal income tax withholding |
Applied to post-step-4 wages |
| 6 |
Social Security (6.2% up to wage base) |
Applied to gross (not pre-tax reduced) |
| 7 |
Medicare (1.45%; +0.9% above $200k single) |
Applied to gross |
| 8 |
State income tax (if applicable) |
Varies by state |
| 9 |
Local/city income tax (if applicable) |
Varies |
| 10 |
Roth 401(k) contributions |
Post-tax |
| 11 |
Garnishments, union dues, other |
Post-tax |
Net pay = Gross − all of the above.
Step-by-step calculation example
Assume: $80,000 annual salary ($3,333 semi-monthly gross), single, one job, standard W-4.
Pre-tax deductions per check:
- 401(k) 6%: ~$200
- Health insurance: ~$150
- HSA: ~$100
Taxable wages for federal: $3,333 − $450 = $2,883
Federal withholding estimate (use IRS Publication 15 or the IRS Tax Withholding Estimator): approximately $300–$380 depending on W-4 elections.
FICA:
- Social Security: $3,333 × 6.2% = ~$207
- Medicare: $3,333 × 1.45% = ~$48
State (assume ~5% state with similar pre-tax treatment): ~$144
Post-tax Roth 401(k): $0 in this example.
Rough net per semi-monthly check: ~$2,333 − $2,433. Annual take-home: ~$56,000–$58,000 on an $80,000 salary with these deductions. That is roughly 70–73%.
Note: these are illustrative ranges. Use the IRS Tax Withholding Estimator (IRS.gov/W4App) or a payroll calculator (Paycheck City, ADP) for your exact situation.
How to pick the right W-4 elections
- If you owed a big tax bill last April, increase withholding by adding an extra dollar amount per pay period on Step 4(c) of Form W-4.
- If you got a large refund, you are over-withholding. Adjust your allowances or reduce extra withholding — that is a free loan to the government.
- If you have significant side income, add extra withholding to cover the self-employment tax and income tax on that income.
- If you changed jobs, had a baby, or married/divorced, update your W-4 within 30 days — your withholding is almost certainly wrong otherwise.
Common mistakes
Using the marginal rate as the effective rate. The 22% bracket does not mean you pay 22% on all income — it means you pay 22% only on the slice in that bracket. Your effective (average) rate will be lower.
Forgetting FICA. Many people model only income tax. The 7.65% FICA (combined SS + Medicare) is a flat cut off the top regardless of bracket.
Not updating your W-4 after life changes. Marriage, divorce, a second job, or a large bonus can all cause significant under- or over-withholding.
Treating pre-tax contributions as "lost money." 401(k) and HSA contributions reduce your withholding and grow tax-advantaged. They are not a cost — they are a rerouting.
What to skip
- Manual calculation for real decisions. Use the IRS Withholding Estimator or a payroll calculator; hand math introduces errors.
- Ignoring state taxes when comparing job offers. A $5,000 raise in a high-tax state may net less than a smaller raise in a no-income-tax state.
- Leaving your W-4 at whatever the onboarding default was for years. Review it annually.
FAQ
Why does my withholding change when I get a bonus?
Bonuses are often withheld at a flat 22% supplemental rate (or aggregated with your regular pay, which can push into a higher bracket temporarily). Your actual tax on the bonus depends on your full-year income.
What is the difference between gross pay, taxable wages, and net pay?
Gross pay is everything your employer pays you. Taxable wages are gross minus pre-tax deductions — the base for income tax withholding. Net pay is what hits your bank account after all deductions.
Do I owe more taxes at filing if I contribute to a traditional 401(k)?
No — traditional 401(k) contributions reduce your taxable income for the year, which reduces what you owe at filing.
How do I estimate take-home pay for a job offer?
Use an online payroll calculator (search "paycheck calculator") with the gross salary, your state, standard deductions (health insurance estimate, 401(k) contribution), and your filing status. The result will be close.
Where to go next
See How to track net worth in a spreadsheet in 2026, How to negotiate a raise for more money in 2026, and How to use an FSA in 2026.