Reading your first US paycheck
Why your paycheck is smaller than your salary, and how to check that it is right.
4 min read
Your first US paycheck will be smaller than you expected. This is normal. Here is where the money goes.
Gross pay is what you earned. Net pay, or take-home pay, is what reaches your bank account. The difference is withholding: money your employer takes out before paying you.
Example pay stub: $2,000 every two weeks
- Gross pay
- $2,000.00
- Federal income tax
- −$180.00
- Social Security (6.2%)
- −$124.00
- Medicare (1.45%)
- −$29.00
- State income tax
- −$80.00
- Health insurance
- −$90.00
- 401(k) savings (5%)
- −$100.00
- Net pay
- $1,397.00
What comes out
- Federal income tax. A guess at your yearly tax, paid a little each payday.
- Social Security and Medicare, often shown together as FICA. Together they are 7.65% for most workers.
- State and local income tax. This depends on where you live. A few states have none.
- Health insurance, if you get it through your job.
- Retirement savings, if you joined a 401(k) or a similar plan.
Form W-4 decides your federal tax
You filled in a W-4 when you started the job. It tells your employer how much federal tax to take out.
- Too much taken out: you get a refund next spring, but you had less money all year.
- Too little taken out: you owe a tax bill in April.
You can file a new W-4 at any time. Do it after a big change: a marriage, a child, a second job, or a spouse who starts working. The free Tax Withholding Estimator at irs.gov shows if your W-4 is close to right.
Check one pay stub carefully
- Your name and tax ID are correct.
- Your hours or salary match what you agreed.
- Nothing is taken out that you did not sign up for.
Payroll mistakes are common. They are much easier to fix in the same month than a year later.
Build your budget on your net pay, not your salary.
Make a simple budget