Your first real paycheck lands, you open the banking app, and the number is smaller than the one in your offer letter. Nothing went wrong: the offer quoted gross pay, the deposit is net pay, and every line in between has a name and a reason.
Gross vs. net: the two numbers that matter most
Your offer letter quoted your gross pay — what you earned before anything comes out. What lands in your account is your net pay, or take-home pay. The gap is your taxes plus the deductions you chose at onboarding. On the $1,600 paycheck below the gap is $336.85, about 21%, and most of it is not gone: part is your own retirement savings, and the tax lines are prepayments on a bill you would owe anyway.
What a paystub shows
A paystub (or earnings statement) comes with every paycheck, on paper or in the payroll app. It has the same sections everywhere:
| Section | What it shows |
|---|---|
| Earnings | Gross pay — hours × rate, or your salary for the period |
| Taxes | Federal income tax, Social Security, Medicare and state income tax withheld |
| Deductions | Things you elected — retirement plan, health insurance, HSA |
| Net pay | What was deposited |
| Year-to-date (YTD) | Running totals for the year so far |
The YTD column is the one to glance at every few months. It shows what you have earned and paid in tax across the year — the same figures that appear on your W-2 in January.
The deductions, one at a time
Here is Omar's first full paycheck. He is 22, single, earns $20 an hour, and worked 80 hours in a two-week pay period: $1,600 gross, $41,600 a year. He put 3% of his pay into the 401(k), and his state charges a flat 4%. The figures come from the paycheck calculator, which assumes the 2025 standard deduction of $15,750, no other adjustments or credits, and no benefit premiums.
| Line | Amount | What it is |
|---|---|---|
| Retirement plan, 3% of pay | $48.00 | Your own savings, taken out before income tax |
| Federal income tax | $104.37 | A prepayment toward the year's federal tax |
| Social Security (6.2%) | $99.20 | Funds retirement and disability benefits |
| Medicare (1.45%) | $23.20 | Funds health coverage for people 65 and over |
| State income tax (4%) | $62.08 | Your state's budget; some states charge none |
| Net pay | $1,263.15 | Deposited to you |
Two ideas unlock most of this table:
- The income tax lines are withholding — your employer prepaying your tax a little each paycheck so you never face one giant bill in April. The amount is set by the W-4 you filled out on day one; how income tax works explains where the money goes.
- Social Security plus Medicare is FICA — a flat 7.65% (6.2% + 1.45%) of every paycheck. Your employer pays a matching 7.65% on top of your wages, and no form changes it.
The federal line is not a flat rate. Over the year Omar's taxable income is $41,600 − $1,248 saved pre-tax − $15,750 standard deduction = $24,602. The tax on that is 10% of the first $11,925 ($1,192.50) plus 12% of the remaining $12,677 ($1,521.24): $2,713.74 a year, or $104.37 per paycheck.
"Pre-tax" is a small superpower
Some deductions are marked pre-tax — the retirement plan, an HSA, and health premiums taken through your employer's plan. They are subtracted before income tax is figured, so they lower your taxable income. Omar's $48 contribution reduces his deposit by only $40.32: without it his federal tax would be $110.13 and his state tax $64.00, so the contribution saves $5.76 + $1.92 = $7.68 of tax on the way in. Saving costs less than the sticker amount. Social Security and Medicare are still charged on the full $1,600.
Run your own numbers in the paycheck calculator — no login needed.
Check the stub, not just the deposit
Payroll errors happen: the wrong hours, the wrong state, a deduction you never signed up for, a retirement contribution that never started. A 60-second read of each stub catches them while they are one paycheck old instead of ten. Three things to confirm on the first one: the hours and rate match what you worked, the state on the tax line is the state you work in, and every line under Deductions is something you chose.