Your first real paycheck arrives, you open the app, and the number is smaller than the one in your offer letter. That's not a mistake, and it's not something you did wrong — nobody teaches how to read a paystub, so almost everyone has this exact moment of confusion. By the end of this lesson, every line on that stub will make sense.
Gross vs. net: the two numbers that matter most
Your offer letter quoted your gross pay — the total you earned before anything is taken out. The amount that actually lands in your bank account is your net pay, often called "take-home pay." The gap between them is the deductions, and on a first paycheck that gap is usually 20% to 30%.
That can feel like a lot. But most of it isn't gone — it's funding things you'll eventually use (retirement, healthcare) or pre-paying taxes you'd owe anyway. Understanding which is which is the whole game.
What a paystub actually shows
A paystub (sometimes called an earnings statement) comes with every paycheck, whether on paper or in a payroll app. It's divided into a few predictable sections:
| Section | What it shows |
|---|---|
| Earnings | Your gross pay — hours × rate, or your salary for the period |
| Taxes | Federal, Social Security, Medicare, and (often) state tax withheld |
| Deductions | Things you signed up for — health insurance, 401(k), HSA |
| Net pay | What's left — the amount deposited |
| Year-to-date (YTD) | Running totals for the whole year so far |
The YTD column is worth a glance every so often. It's the easiest way to see how much you've earned and paid in taxes across the year — numbers you'll need at tax time.
The deductions, explained one at a time
Here's a typical first paycheck for someone earning about $20/hour, working 80 hours in a two-week pay period — roughly $1,600 gross.
| Line | Roughly | What it is |
|---|---|---|
| Federal income tax | ~$120 | A prepayment toward your yearly federal tax bill |
| Social Security (6.2%) | $99 | Funds retirement & disability benefits |
| Medicare (1.45%) | $23 | Funds health coverage for people 65+ |
| State income tax | ~$50 | Your state's budget (nine states have none) |
| Health insurance | ~$60 | Your share of the premium, if you enrolled |
| 401(k) contribution | ~$48 | Your own retirement savings (still your money) |
| Net pay | ~$1,200 | Deposited to you |
Two ideas unlock most of this:
- Taxes aren't optional, but they're not lost either. The federal and state lines are withholding — your employer pre-paying your taxes for you, a little each paycheck, so you don't face one giant bill in April. We cover exactly how income tax works in How income tax works.
- Social Security + Medicare together are called FICA — a flat 7.65% that comes out of every paycheck. Your employer quietly pays a matching 7.65% on top of your wages.
"Pre-tax" is a small superpower
You'll see the word pre-tax next to some deductions (401(k), health insurance, HSA). It means that money is subtracted before your income tax is calculated — so it lowers your taxable income. A $48 pre-tax 401(k) contribution might only reduce your take-home by about $40, because you also skip the tax on it. You're effectively getting a small discount for saving.
Want to see this for your own numbers? The free paycheck explainer breaks a gross paycheck into the same lines, no login required.