How Take-Home Pay Is Calculated

A paycheque carries one number. The number on the offer letter is a different one, and the gap between them is built from a short list of rules that can be written down exactly.

The net pay calculator works through those rules in the order they apply to a wage, using the figures for tax year 2026.

The order the money comes out

A wage arrives as a single gross amount. From there the money leaves in a fixed sequence.

1. Pre-tax deductions come out first. A 401(k) contribution, an HSA contribution and an FSA contribution are all taken out of the wage before anything else. What each one does to the taxes is not the same, and the section below sets out which is which.
2. The standard deduction comes out of the remaining wages. For 2026 it is $16,100 for a single filer, $32,200 for married filing jointly and $24,150 for head of household. What is left is taxable income, and that is the amount the federal brackets are applied to.
3. Federal income tax is computed on taxable income.
4. Social Security is charged at 6.2% on the wages, up to the taxable maximum of $184,500 for 2026.
5. Medicare is charged at 1.45% on all wages, with no ceiling.
6. The Additional Medicare Tax is charged at 0.9% on the wages above the threshold for the filing status.
7. State income tax is applied at the rate entered on the page.

What survives those steps is the take-home amount, and the calculator divides it by the number of periods in the year to get the figure per period.

The wages that the payroll taxes are charged on are the ones left after an HSA or FSA contribution and before the standard deduction. A 401(k) contribution stays inside that base. That distinction matters: the standard deduction reduces federal income tax and state tax, while Social Security and Medicare are charged on the larger base.

The two pre-tax deductions are not the same

The IRS excludes a 401(k) contribution from income, and it counts the same contribution as wages for Social Security and Medicare. IRS Tax Topic 401 puts it plainly: the amount is not included in wages subject to income tax, “but those amounts remain subject to Social Security and Medicare taxes in the year they’re withheld.” Publication 525 says the same thing about elective deferrals.

An HSA or FSA contribution is the other case. Where it comes out of the paycheque through a section 125 cafeteria plan, it is excluded from income and it is not wages for Social Security either. SSA’s policy manual RS 01402.038 states it directly: an employee contribution to an FSA “via a qualified salary reduction agreement” is not wages for Social Security coverage, and an HSA contribution made that way is not either.

So the calculator has two fields for the two cases:

• a 401(k) or 403(b) contribution lowers the federal income tax and leaves Social Security and Medicare where they are;
• an HSA or FSA contribution lowers the federal income tax and the payroll taxes as well.

There is one exception to the second case, and it is the kind worth knowing about: an HSA contribution made straight from a bank account, rather than out of the paycheque, is wages for Social Security. The calculator treats the contribution as a salary reduction, because that is the arrangement that produces the exemption.

The federal brackets

Federal income tax is not a single rate. For 2026, a single filer’s taxable income falls into these brackets:

• 10% on the first $12,400
• 12% from $12,400 to $50,400
• 22% from $50,400 to $105,700
• 24% from $105,700 to $201,775
• 32% from $201,775 to $256,225
• 35% from $256,225 to $640,600
• 37% above $640,600

The IRS publishes each bracket as a fixed amount of tax plus a percentage of the excess over the bottom of the bracket, and the calculator computes it the same way. A single filer with $50,400 of taxable income owes $1,240, which is the tax at the bottom of the 12% bracket, and nothing more. At $60,000 the same filer owes $1,240 plus 12% of the $9,600 above $50,400, which comes to $2,392.

These brackets and the standard deduction come from Rev. Proc. 2025-32, published in Internal Revenue Bulletin 2025-45 on 3 November 2025.

Social Security, Medicare and the state rate

Social Security is a 6.2% charge on wages up to a taxable maximum, which is $184,500 for 2026. Wages above that ceiling are not charged again, which means the marginal rate on Social Security is 6.2% up to the ceiling and zero above it.

Medicare is a 1.45% charge on all wages, with no ceiling at all. On top of it sits the Additional Medicare Tax: 0.9% on wages above $200,000 for a single filer, a married filer filing separately or a head of household, and above $250,000 for married filing jointly. Those thresholds are not indexed for inflation, so they have stayed at the same numbers since 2013. The Social Security Administration’s Publication 15 sets out both the rates and the thresholds.

The state income tax in the calculator is the rate entered on the page, applied to taxable income. That is a simplification, and a deliberate one: most states tax at progressive rates, so a single percentage applied to the whole of taxable income sits above what a progressive state would collect and matches a flat-rate state exactly. The rate on the page is the only state-specific input in the calculation.

Why the effective rate sits below the marginal rate

The two rates in the results answer different questions. The marginal rate is the rate the next dollar of taxable income is taxed at, so it belongs to the bracket the income has already reached. The effective rate divides the total tax by the whole gross pay, so it blends every bracket the income touched, the part of the gross that was never taxed at all, and the deductions that came out before the tax was computed.

Take a single filer with $60,000 of gross pay, no pre-tax deductions and a 5% state rate. The total tax is $11,805: $5,020 federal, $3,720 Social Security, $870 Medicare and $2,195 state. The effective rate is 19.68%. The marginal rate is 12%, because the taxable income of $43,900 sits in the 12% bracket. Most of that $60,000 was taxed at 10% or at 12%, and $16,100 of it was not taxed at all, so the average lands below the rate that the next dollar would meet.

Adding a $5,000 401(k) contribution to the same case shows the effect from the other direction, and shows why the two deductions are entered separately. The taxable wages fall to $55,000 and the federal tax falls to $4,420, but Social Security stays at $3,720 and Medicare at $870, because the contribution is still wages for the payroll taxes. The state tax falls to $1,945, the total tax to $10,955 and the effective rate to 18.26%. The take-home amount falls as well, because the $5,000 left the wage before the taxes were computed.

A $5,000 HSA or FSA contribution in the same case reaches further. The federal tax is the same $4,420, and this time the payroll taxes move too: Social Security falls to $3,410 and Medicare to $797.50. The total tax is $10,572.50, the effective rate 17.62%, and the take-home amount $44,427.50 against $44,045.00 for the 401(k).

What the calculation leaves out

The figure on the page is the tax for the year, computed from annual numbers. Several things sit outside it.

• Credits. No tax credits are applied, so the tax shown is the liability before credits.
• Itemized deductions. The standard deduction is used, and the calculator does not model a deduction that depends on what a reader actually paid.
• Local taxes. City, county and school income taxes are not part of it.
• Withholding per paycheque. Withholding is set on the W-4 and is what the employer remits during the year, so one paycheque can differ from a twelfth of the annual total. IRS Tax Topic 511 describes how withholding is calculated.
• Benefits that are not in the wage. An employer contribution to health insurance or a retirement plan does not appear in the gross pay the reader types, so it does not appear in the result either.
• Contribution limits. The annual limits on 401(k) and HSA contributions are not checked. A contribution as large as the whole pay leaves the take-home figure below zero, because the payroll taxes are still charged on it.