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Gross Pay vs. Net Pay

Your gross pay is the total amount you earn before any deductions — the number in your employment offer letter. Your net pay (take-home pay) is what actually lands in your bank account after taxes and deductions are removed.

The gap between gross and net can be surprisingly large. A person earning $75,000 annually may only take home $52,000-$57,000 depending on their state, filing status, and benefit elections. That gap is not lost — much of it goes to taxes, retirement savings, and health benefits.

How Federal Tax Brackets Work

The US uses a progressive tax system, meaning each dollar is taxed at the rate for its bracket — not your entire income at the top rate. This is one of the most misunderstood concepts in personal finance.

For example, if you are single and earn $60,000, your taxable income (after the $14,600 standard deduction) is $45,400. The first $11,600 is taxed at 10%; the next $33,800 is taxed at 12%. Your marginal rate is 12%, but your effective rate is closer to 10-11%.

The standard deduction is automatically subtracted from your income before applying brackets. Most people claim the standard deduction rather than itemizing — it was nearly doubled by the 2017 Tax Cuts and Jobs Act.

FICA Taxes: Social Security and Medicare

FICA (Federal Insurance Contributions Act) taxes fund Social Security and Medicare. Unlike income taxes, these are flat rates applied to every dollar of wages:

• •Social Security: 6.2% on income up to the wage base ($168,600 in 2024). Once you cross this threshold, SS tax stops for the year.
• •Medicare: 1.45% on all wages, no cap. High earners (over $200,000 single / $250,000 married) pay an additional 0.9% surtax.

Your employer also pays a matching 7.65% in FICA taxes on your behalf — money you never see but is part of your total compensation cost.

Pre-Tax Deductions: Your Best Tax Lever

Pre-tax deductions reduce your taxable income before federal (and usually state) taxes are calculated. The most common pre-tax deductions are:

• •401(k) contributions: Traditional 401(k) contributions lower your taxable income dollar-for-dollar. The 2024 limit is $23,000 ($30,500 if over 50).
• •Health insurance premiums: Employer-sponsored health insurance is paid with pre-tax dollars, reducing your taxable income.
• •FSA/HSA contributions: Flexible and Health Savings Accounts let you pay medical expenses with pre-tax money.

Contributing more to pre-tax accounts simultaneously reduces your tax bill and builds wealth — a rare financial win-win.

State Income Taxes

State tax rates vary dramatically across the US. Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Others like California and New Jersey have top marginal rates exceeding 10%.

Unlike federal taxes, most states use a flat rate or simpler bracket structure. This calculator uses a simplified flat rate — enter your state's effective rate for a close estimate. For precise withholding, consult your state's tax authority or payroll department.

If you live in one state and work in another, you may owe taxes in both — though most states have reciprocity agreements or allow credits to prevent double taxation.

Effective Rate vs. Marginal Rate

Two numbers every worker should understand:

• •
  Effective tax rate: Your total taxes divided by your gross income. This is your true average rate — the best measure of your overall tax burden. Most middle-income Americans have an effective federal rate of 10-15%.
• •
  Marginal tax rate: The rate on your next dollar of income. Relevant for decisions like whether to take on extra work, exercise stock options, or do a Roth conversion.

People often say "I got a raise and now I'm in a higher bracket" with alarm — but moving into a higher bracket only taxes the amount above the threshold at the higher rate. Your overall tax burden increases only slightly.