How to Read Your Pay Stub: Every Deduction Explained in Plain English
You earn $60,000 but take home $45,000. Where does the other $15,000 go? Every line on your pay stub explained.
The gap between your salary and your take-home pay is not theft — it is a series of deductions, each with a specific purpose, that most people never examine because the money disappears before they see it. Understanding what each deduction does and whether you have any control over it is the first step to optimizing your paycheck without changing your salary.
Federal Income Tax
This is the largest deduction for most workers. Your employer withholds an estimated amount based on your W-4 form selections. If you got a large refund last year (over $1,000), your withholding is too high — you gave the government an interest-free loan. If you owed money, your withholding is too low. Adjusting your W-4 by changing your allowances or requesting additional withholding can fine-tune this so you neither overpay nor underpay throughout the year.
FICA: Social Security and Medicare
Social Security tax is 6.2% of your gross pay up to $168,600 (the 2026 wage base). On a $60,000 salary, that is $3,720 per year or $310 per month. Medicare tax is 1.45% with no income cap — $870 per year on $60,000. Combined FICA takes 7.65% of every paycheck. Your employer matches this amount, effectively doubling the contribution, but their match does not appear on your stub because it is an additional expense to the company above your salary.
State and Local Taxes
State income tax ranges from zero (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming) to over 13% (California's top bracket). If you live in a no-income-tax state, this line simply does not appear. Some cities add local income tax — New York City residents pay 3-3.9% on top of state tax, and Portland, Oregon adds an additional arts tax. These rates are fixed by law and cannot be adjusted on your end.
Deductions You Can Control
Health insurance premiums come out pre-tax, reducing your taxable income. A $400/month health insurance premium saves you roughly $100-150/month in taxes you would otherwise owe. 401(k) or 403(b) contributions are also pre-tax — contributing $500/month reduces your taxable income by $6,000/year, which typically saves $1,200-1,800 in federal taxes alone. FSA and HSA contributions work the same way. Maximizing these pre-tax deductions is the most effective way to reduce your tax burden without changing your salary.
See your exact take-home pay under any scenario with our paycheck calculator and check whether your salary is competitive with our salary comparison tool.