How to read your paycheck, line by line

Published October 26, 2026. Every figure in this guide is computed by the calculator engine or taken from its cited primary sources. Rates verified on 2026-10-26.

Filed under Employee · Guides · Tags: Paychecks, Pay stubs, Federal withholding, FICA

Gross pay

Your pay before anything is taken out — the starting point of every line below it.

Why this rate: Not a tax — it is the amount your employer agreed to pay for the period.

What changes it: Hours, salary, overtime and bonuses. Every other line in the result is computed from this amount.

Federal income tax

Federal income tax. On an employee paycheck (P1) this is the amount WITHHELD for the period, computed with the IRS Publication 15-T percentage method for automated payroll (Worksheet 1A): the period wage is annualized, adjusted for the Form W-4 entries — Step 4(a) other income added, Step 4(b) deductions and the Step 2 checkbox adjustment subtracted — taxed on the publication's own annual percentage schedules, then divided back by the pay periods, with the Step 3 amount credited per period and any Step 4(c) extra amount added. On the self-employment side (P3) it is the estimated annual liability: income minus the standard deduction, taxed through the 10%-37% brackets for the filing status.

Why this rate: Congress sets the rates in the Internal Revenue Code. The IRS publishes the withholding machinery each year in Publication 15-T (2026 edition for 2026 paychecks) and the annual brackets and standard deductions in its yearly revenue procedure (for 2026: Rev. Proc. 2025-32).

What changes it: Pay level and frequency, filing status, and the Form W-4 entries (Step 2 checkbox, Step 3 amount, Steps 4(a)/4(b)/4(c)) — and in P3, the one-half SE tax deduction and the QBI deduction, which reduce taxable income before the brackets apply.

Social Security

Your Social Security (FICA) contribution: 6.2% of wages, but only on the first $184,500 earned in 2026. It funds Social Security retirement and disability benefits.

Why this rate: Set by Congress (IRC §3101): 6.2% employee + 6.2% employer. The $184,500 wage base for 2026 is announced by the Social Security Administration and rises with national wage growth.

What changes it: It stops mid-year once cumulative wages (all employers combined, in this engine's liability view) reach the $184,500 wage base; the base is re-set by the SSA every October.

Medicare

Your Medicare (FICA) contribution: 1.45% of every dollar of wages, with no cap. It funds Medicare health insurance for people 65 and over.

Why this rate: Set by Congress (IRC §3101): 1.45% employee + 1.45% employer. There has never been a Medicare wage cap.

What changes it: Nothing caps it — it grows dollar-for-dollar with pay. Only the wage amount changes it.

Additional Medicare tax

An extra 0.9% Medicare tax that only high earners pay, on wages above $200,000 (single/head of household), $250,000 (married filing jointly) or $125,000 (married filing separately). Employers do NOT match it.

Why this rate: IRC §3101(b)(2), in force since 2013. The thresholds are fixed in the statute and are not indexed for inflation.

What changes it: It switches on only after cumulative wages pass the threshold for the filing status, and applies only to the part above the threshold.

State income tax

State income tax on your wages for the state shown — flat in some states (one rate for everyone), progressive in others (brackets like the federal tax), and zero in the nine states that do not tax wages.

Why this rate: Each state's legislature sets its own rates, brackets and deductions; the figures here are the state's 2026 parameters as encoded in the data pack.

What changes it: The state (each sets its own system), income, the state's standard deduction/exemptions, and state law changes — several states cut rates for 2026.

State payroll programs — disability insurance (CA SDI)

California State Disability Insurance (SDI): an employee-paid 1.3% of wages with no cap since 2024, funding short-term disability and Paid Family Leave benefits.

Why this rate: Set under the California Unemployment Insurance Code; the EDD publishes the rate each year (1.3% for 2026).

What changes it: The rate is set annually by the EDD; it applies to all wages (no ceiling since SB 951 removed the cap).

State payroll programs — paid family leave (NY PFL)

New York Paid Family Leave premium: an employee-paid percentage of wages (0.432% in 2026), capped at $411.91 for the year, funding paid family leave benefits.

Why this rate: Set annually by the NY Department of Financial Services under the state's Paid Family Leave law.

What changes it: It stops at the annual dollar cap; NY re-sets the rate and cap every year.

State payroll programs — long-term care (WA Cares)

WA Cares: Washington's long-term care payroll premium, 0.58% of wages paid by the employee, with no wage cap.

Why this rate: Set by Washington statute (Long-Term Services and Supports Trust Act); the premium rate is fixed at 0.58% until the program's scheduled review.

What changes it: It applies to most Washington wages; some workers with approved exemptions (e.g. private long-term-care insurance bought before Nov 2021) are excluded — not modeled here.

Local income taxes — the New York City module

New York City resident income tax, an additional local tax (roughly 3.08%-3.88%) paid only by people who live in the five boroughs, on top of New York State tax.

Why this rate: Set by New York City / New York State law and collected with the state return.

What changes it: It applies only if you live in NYC; the rate rises through four brackets with income.

Tips and the §224 deduction

The federal 'no tax on tips' deduction (IRC §224, 2025-2028): if you work in a traditionally tipped occupation, up to $25,000 of your reported voluntary tips is deducted from your federal taxable income.

Why this rate: Set by the One Big Beautiful Bill Act (new IRC §224) and IRS guidance (Tax Tip 2026-06; Schedule 1-A). Eligibility — a listed tipped occupation, voluntary reported tips, not a specified service business — is your declaration; the calculator applies the statutory amounts.

What changes it: Your total qualified tips (capped at $25,000), and your income: the deduction shrinks by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 if married filing jointly) and disappears for married-filing-separately filers. It does NOT reduce Social Security/Medicare tax or state tax — tips stay fully taxable there.

Total deductions

The sum of every deduction line for this paycheck — everything taken out between gross pay and net pay.

Why this rate: Not a tax — the subtotal of the lines above it.

What changes it: Any of the component lines; it drops noticeably mid-year for high earners once the Social Security cap is reached.

Net pay

What actually lands in your bank account for the period: gross pay minus every deduction line above it.

Why this rate: Not a tax — it is the remainder after the taxes above are subtracted.

What changes it: Any change in gross pay or in any deduction — including mid-year changes like reaching the Social Security cap, which makes net pay jump up.