Your gross pay is the total amount you earn before any deductions. Your net pay, or take-home pay, is what remains after federal income tax, FICA taxes (Social Security and Medicare), state taxes, and any voluntary pre-tax deductions like retirement contributions and health insurance premiums are withheld.

FICA taxes consist of Social Security tax at 6.2% on earnings up to $168,600 (2024) and Medicare tax at 1.45% on all earnings. High earners may also owe an additional 0.9% Medicare surtax on earnings above $200,000 for single filers. These are mandatory payroll taxes that fund Social Security and Medicare programs.

Pre-tax deductions like 401(k) contributions and health insurance premiums reduce your taxable income, which lowers your income tax withholding. Contributing more to your 401(k) increases your retirement savings while reducing your current tax bill. Understanding these deductions helps you optimize your paycheck and plan your budget around the amount that actually hits your bank account.