Your first paycheck, decoded

You got the offer. The number was $60,000. So why does your direct deposit show $1,747 every two weeks instead of the $2,308 the math says it should be?

That $561 gap, every paycheck, is your paystub doing its job. By the end of this lesson, you’ll know exactly where every dollar of it goes, and which ones can actually be adjusted.

The two numbers that matter most

Every paycheck has two big numbers. Gross pay is what you earned before anything was taken out. Net pay is what actually hits your bank account. The space between them is filled with taxes and deductions. Most of them are not optional. A few of them are.

For a $60,000-per-year salary paid every two weeks, gross pay per check is about $2,308. The rest of this lesson walks through what gets removed before the rest reaches your account.

Federal income tax

This is the biggest one. The federal government uses a progressive tax system, which means different chunks of your income are taxed at different rates: 10%, 12%, 22%, 24%, and so on^[1]. A common myth: that if a raise pushes you into a higher bracket, your whole income is taxed at the higher rate. That’s not how it works. Only the dollars above each threshold get taxed at the higher rate.

For a single person earning $60,000 in 2026, the federal tax bill works out to roughly $5,500 for the year, or about $211 per paycheck. The marginal rate (the rate on the next dollar) is 22%, but the effective rate (the average across all income) is closer to 9%. The two are very different numbers.

FICA: Social Security and Medicare

FICA is two separate taxes that show up on a paystub as one or two line items. Social Security takes 6.2% of wages up to a yearly cap ($184,500 in 2026)^[2]. Medicare takes 1.45% of every dollar earned, with no cap^[3]. Together, that’s 7.65% of gross pay.

On $2,308 of gross pay, FICA takes about $177. The employer pays a matching 7.65% behind the scenes. That doesn’t show up on a paystub, but it’s part of why a salary costs an employer more than the salary itself.

State and local income tax

This depends entirely on where you live. Eight states have no state income tax (Texas, Florida, Tennessee, and Washington are among them). California’s top rate is over 13%. Most states sit between 4% and 7%. Some cities (New York City and Philadelphia, for instance) add their own income tax on top.

A Texas resident earning $60,000 has $0 of state income tax. A California resident has roughly $1,800 of state tax for the year, a meaningful difference. When comparing job offers in different states, the gross salary isn’t the comparison. Take-home is.

Pre-tax deductions: this is where there’s control

Above the tax lines, paystubs often include deductions that come out before taxes are calculated. The big three:

• 401(k) contributions. Money elected into a workplace retirement account. In 2026 the elective deferral limit is $24,500 ($32,500 if age 50+, including the $8,000 catch-up; $35,750 for ages 60-63 under the SECURE 2.0 super catch-up if the plan allows it)^[4]. Every dollar going in lowers taxable income for the year, so the tax that would have been paid on those dollars is saved.
• Health insurance premiums. An employee’s share of the monthly cost of an employer’s health plan, usually pulled pre-tax.
• HSA / FSA contributions. Money set aside for medical expenses. An HSA is triple tax-advantaged: no tax going in, no tax on growth, no tax coming out for medical use.

These deductions reduce the amount that federal income tax (and, in most states, state income tax) is calculated on. So a $200 per-paycheck 401(k) contribution doesn’t actually cost $200 of take-home pay. It costs roughly $150, because about $50 in taxes is saved. That’s a real, automatic discount on saving for retirement.

The employer match: money on the table

If an employer offers a 401(k) match, the math is striking. Contributing enough to capture the full match means an instant return on those dollars before they’re even invested. For example, a 100% match on the first 4% of salary turns each $1 of employee contribution (up to the cap) into $2 in the account. Any contribution below the match leaves dollars unclaimed that are technically part of the compensation package.

On $60,000 with a 100% match on the first 4%, that’s $2,400 of employer money per year. Over a 30-year career, with normal market returns, that compounds into something close to $200,000. From a single change to the contribution percentage.

Putting it all together

For a $60,000-per-year, single, no-kids, lives-in-Texas, no-401(k) example employee, each $2,308 biweekly gross check breaks down roughly like this:

• Federal income tax: ~$211
• Social Security (6.2%): ~$143
• Medicare (1.45%): ~$33
• State income tax: $0 (Texas)
• Health insurance premium: ~$80 (varies a lot)
• Net pay: ~$1,841

That’s a 20% gap between the salary on paper and the dollars hitting the account. Live somewhere with state income tax and the gap gets bigger. Add a 401(k) contribution and take-home drops a bit, but total compensation goes up because of the pre-tax savings and the match.

Common mistakes

• Budgeting from gross pay instead of net pay. The 30% rent-to-income guideline lands very differently depending on whether the 30% comes off gross or net. Many beginners use gross and end up house-poor.
• Skipping the 401(k) match. The most common reason people give: “I’ll start when I make more.” The cost of waiting one year is rarely just one year of contributions. It’s one year of compounding at the back end of a career.
• Treating bonuses as bonus money. Bonuses are usually taxed at a flat 22% federal withholding, but they get reconciled to the real bracket at tax time. They’re income. Worth planning for them like income.
• Ignoring the W-4. The form filled out when starting a job determines how much federal tax gets withheld. Getting it wrong in either direction means either owing the IRS in April or lending them money interest-free all year.

Practical things people often do this week

1. Pull up the most recent paystub. Find the gross, the net, and every line in between.
2. Look up whether the employer offers a 401(k) match, and what the full match requires. Many people who discover they’re below the match update their contribution that same day.
3. Multiply net pay by 26 (biweekly) or 12 (monthly). That’s actual annual take-home. Building a budget on that number, rather than the salary number, is a common practice that prevents surprises.
4. If withholding feels off (a giant refund last year, or owing money in April), filling out a fresh W-4 is the standard response. The IRS provides a free withholding estimator on its website.

That’s it. The paystub isn’t trying to confuse anyone. It’s just listing every party with a claim on gross pay, in the order they take their cut. Now you can read it line by line.

What this lesson is NOT

This is not tax advice, and it does not cover self-employment or 1099 income, where nothing is withheld for you. Withholding and take-home pay change with your state, your W-4 choices, and your benefits, so your paystub will not match this example dollar for dollar. The point is to show you where the money goes, not to predict your exact number.

Spot a mistake in this lesson? Email [email protected].