Payroll Deductions Explained: What Comes Out of Your Paycheck

Your gross pay looks good on paper. Your actual paycheck — not as much. If you've ever stared at a pay stub wondering where 30% of your money went, this is the breakdown you need.

Every dollar that leaves your paycheck before it hits your bank account falls into one of three categories: required taxes, voluntary benefit deductions, and court-ordered deductions. Here's what each one is, how it's calculated, and whether you have any control over it.

Mandatory Payroll Deductions

Federal Income Tax

Usually the largest single line on your stub. The amount depends on your gross pay, your filing status (single, married, head of household), and the elections you made on your W-4. Federal income tax uses a graduated bracket system — you pay 10% on the lowest slice of your income and up to 37% on the highest, though most workers never reach that top bracket.

You can adjust how much is withheld by updating your W-4 with your employer at any time. If you consistently get a large refund, you're over-withholding — that's an interest-free loan to the IRS. If you owe every spring, you're under-withholding and may face a penalty. See: How to Fill Out a W-4 in 2026.

Social Security Tax (OASDI)

Social Security is 6.2% of your gross wages up to the annual wage base. In 2026, that cap is $176,100 — once your earnings for the year cross that threshold, Social Security withholding stops for the rest of the calendar year. Your employer matches your 6.2%, so 12.4% total flows toward Social Security on every dollar you earn up to that limit.

Medicare Tax

Medicare is 1.45% of all wages with no income cap. If you earn above $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare surtax kicks in. Your employer matches the base 1.45% but not the surtax. Together, Social Security and Medicare are called FICA taxes — for most workers, that's 7.65% of every gross paycheck. Full explainer: What Is FICA Tax?

State and Local Income Tax

Most states withhold income tax from every paycheck. Rates range from a flat 2.5% in Arizona to graduated rates above 10% in California and Hawaii. Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire on earned income. Some cities and counties layer on their own tax — New York City, Philadelphia, and Detroit are common examples. If you see a "city tax" or "local tax" line on your stub, that's why.

Voluntary Payroll Deductions

These are deductions you opt into — typically during open enrollment or when starting a new job. Most come out pre-tax, meaning they reduce your taxable income before the government calculates what you owe. That distinction is worth real money.

Health Insurance Premiums

Your share of the monthly premium for employer-sponsored health coverage. Most employers run this through a Section 125 cafeteria plan, making it a pre-tax deduction — it reduces federal taxable income, state taxable income, and even FICA. A $300/month premium effectively costs you less than $300 in take-home pay because of those tax savings. Dental and vision premiums work the same way.

401(k) or 403(b) Contributions

Contributions to a traditional (pre-tax) retirement account reduce your taxable income dollar for dollar. Contribute $500/month and your federal taxable income drops by $6,000 for the year. The 2026 employee contribution limit is $23,500 ($31,000 if you're 50 or older with catch-up contributions). Roth 401(k) contributions come out after tax but grow and withdraw tax-free. See the comparison: Pre-Tax vs Roth 401(k): How Each Affects Your Paycheck.

Health Savings Account (HSA)

Available only if you're enrolled in a high-deductible health plan. Payroll HSA contributions avoid federal income tax, state income tax (in most states), and FICA — making them among the most tax-efficient deductions available. The 2026 limit is $4,300 for self-only coverage. Unlike FSA funds, HSA balances roll over year to year and can be invested. More: FSA vs HSA: How Each One Affects Your Paycheck.

Flexible Spending Account (FSA)

An FSA lets you set aside pre-tax dollars for qualified medical or dependent care expenses. The 2026 healthcare FSA limit is $3,300. Contributions reduce both income tax and FICA, but funds are typically use-it-or-lose-it by year end. Contribute only what you're confident you'll spend in the plan year.

Life and Disability Insurance

Supplemental life insurance and voluntary disability coverage premiums typically come out post-tax. One nuance: if your employer pays for group life insurance above $50,000 in coverage, the IRS requires the value to be added to your taxable wages as imputed income — you'll see a small gross addition on your stub. Full explanation: What Is Imputed Income?

Involuntary Non-Tax Deductions

Wage Garnishments

Courts can order your employer to withhold a portion of your paycheck for unpaid debts, child support, alimony, defaulted student loans, or back taxes. Your employer is legally required to comply. Federal law under the Consumer Credit Protection Act caps most garnishments at 25% of your disposable earnings per pay period, though child support and alimony orders can be higher.

Pre-Tax vs Post-Tax: Why the Order Matters

Pre-tax deductions — traditional 401(k), health insurance premiums, HSA, FSA — reduce your taxable income before federal, state, and FICA taxes are calculated. Post-tax deductions (Roth 401(k), some insurance premiums) come out after taxes are already applied.

Here's what the difference looks like in practice. A single earner at $65,000 who contributes $300/month to a traditional 401(k) and pays $200/month in pre-tax health insurance premiums reduces their taxable income by $6,000 for the year. At a 22% marginal federal rate, that's $1,320 saved in federal income tax — plus roughly $459 saved in FICA on the health premium portion. Nearly $1,800 per year that stays in their paycheck or retirement account instead of going to the government.

This is why maximizing pre-tax benefit elections isn't just about the benefits — it directly increases your take-home pay on every single paycheck.

How to Audit Your Own Pay Stub

Pull your most recent pay stub and match every deduction line to one of the categories above:

• FIT or Federal Tax: federal income tax withholding
• SS Tax or OASDI: Social Security (should be 6.2% of gross wages)
• Medicare or MED: Medicare (should be 1.45% of gross, or 2.35% above the surtax threshold)
• SIT or State Tax: state income tax
• Medical / Dental / Vision: insurance premium — should be pre-tax through your employer's Section 125 plan
• 401k or 403b: retirement account contribution
• HSA or FSA: benefit account contributions

If you see a deduction you don't recognize or an amount that doesn't match your enrollment elections, flag it with HR or payroll right away. Errors happen, and they're your responsibility to catch — not your employer's to volunteer.

To see how your specific deductions affect your actual take-home, use our take-home pay calculator. It accounts for pre-tax deductions, your state, and filing status — so you get an accurate net paycheck number, not an estimate. For a deeper look at any specific deduction, see our guides on FICA taxes, 401(k) contributions, and how to read a pay stub.