Gross pay is not what you take home
Gross pay is what you earned before anything is removed. Net pay — take-home pay — is what actually reaches your account. The gap between them is withholding, and it is larger than most people expect: for a typical wage earner it is commonly 20% to 30% of gross.
Step 1: Calculate gross pay
For hourly work, multiply your rate by hours worked, then add overtime at 1.5× the rate for qualifying hours. If you earn $32.50 an hour and worked 80 hours in a two-week period, gross pay is $2,600. Add any bonus or commission for that period.
Step 2: Federal income tax
Federal withholding is not a flat percentage of your paycheck. Payroll annualizes your pay — multiplies one period by the number of periods in a year — subtracts the standard deduction, applies the progressive brackets to what remains, then divides the annual result back down to one period.
This is why the brackets do not mean what people often think. Being "in the 22% bracket" does not mean 22% of your income goes to federal tax; only the portion of income inside that bracket is taxed at 22%. Your effective rate is always lower than your top bracket.
Step 3: FICA — Social Security and Medicare
These two are flat and predictable:
- Social Security: 6.2% of gross wages, until year-to-date wages reach the annual wage base. After that it stops entirely for the rest of the calendar year.
- Medicare: 1.45% of all wages with no cap, plus an extra 0.9% on wages above $200,000 in a year.
On $2,600 of gross pay that is $161.20 for Social Security and $37.70 for Medicare.
Step 4: State income tax
This is where two people with identical salaries end up with visibly different paychecks. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire withhold nothing from earned wages. Some states apply a single flat rate. Others use progressive brackets like the federal system. A few also have local or city income taxes on top.
Step 5: Subtract
Net pay = gross pay − federal income tax − Social Security − Medicare − state income tax − any other deductions.
Working the example through in Pennsylvania: $2,600 gross, roughly $286 federal, $161.20 Social Security, $37.70 Medicare, and about $79.82 state tax gives a net of roughly $2,035. That is 78% of gross — a normal result for a middle-income W-2 employee.
What this calculation does not include
Real payroll often also deducts health insurance premiums, retirement contributions, HSA or FSA elections, garnishments, and union dues. Pre-tax deductions such as a traditional 401(k) contribution reduce taxable wages before income tax is calculated, which is why they cost less in take-home pay than their face value suggests.
Check it against a stub
The fastest sanity check is the year-to-date column. Divide YTD gross by the number of pay periods elapsed; the result should land close to your current period's gross. If it does not, either the pay varies or something in the arithmetic is wrong.