Every Paycheck Deduction Explained: Taxes, Benefits & More (2026)

Your employer pays you one number — your gross salary. By the time the paycheck lands in your account, multiple deductions have been taken. Here’s a complete guide to every line item.

Use our Paycheck Calculator to model your exact take-home based on your salary and benefits.

The Three Categories of Paycheck Deductions

1. Mandatory deductions — required by law (taxes, garnishments)
2. Pre-tax voluntary deductions — reduce your taxable income
3. Post-tax voluntary deductions — taken after taxes are calculated

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Mandatory Deductions

Federal Income Tax

Withheld based on your W-4 elections and filing status. Uses the current tax brackets:

• 10% on income up to $11,925 (single, 2026)
• 12% on income $11,926–$48,475
• 22% on income $48,476–$103,350
• And so on up to 37%

Your employer withholds an estimated amount each pay period and reconciles annually when you file. On a $60,000 salary with no adjustments, expect approximately $5,200–$6,500/year in federal withholding for a single filer.

Social Security Tax (OASDI)

• Rate: 6.2% of gross wages
• Wage cap: $176,100 in 2026 (you stop paying once you hit this)
• On $60,000 salary: $3,720/year ($143.08 biweekly)

Medicare Tax (HI)

• Rate: 1.45% on all wages (no cap)
• On $60,000 salary: $870/year ($33.46 biweekly)
• Additional Medicare Tax: +0.9% if annual wages exceed $200,000 (single) or $250,000 (MFJ)

FICA (Social Security + Medicare combined) = 7.65% of wages. This is always listed separately on your pay stub.

State Income Tax

Varies by state:

• No state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
• Flat rate states: Illinois (4.95%), Massachusetts (5%), Pennsylvania (3.07%)
• Graduated rate states: California (up to 13.3%), New York (4%–10.9%), New Jersey (1.4%–10.75%)

On a $60,000 salary in California, expect approximately $2,100–$3,200 in state income tax depending on filing status and deductions.

State Disability Insurance (SDI)

Required in: California (1.1%), New Jersey (~0.9%), New York (~0.5%), Hawaii, Rhode Island, Washington.

Local / City Taxes

Some cities impose local income taxes:

• New York City: 3.078%–3.876%
• Philadelphia: 3.44% (residents)
• Detroit: 2.4%
• Columbus, OH: 2.5%

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Pre-Tax Voluntary Deductions

These deductions come out before federal income tax and (in most cases) FICA are calculated, reducing your taxable wages.

Traditional 401(k) Contributions

• Reduces federal taxable income (Box 1 on W-2) dollar for dollar
• Does not reduce Social Security and Medicare taxable wages
• 2026 limit: $23,500 ($31,000 if 50+)

Health, Dental, and Vision Insurance (Section 125)

Premiums paid through your employer’s cafeteria plan (Section 125) are pre-tax for:

• Federal income tax
• Social Security and Medicare (unlike 401k)
• State income tax in most states

This is one of the best tax benefits for employees — you’re paying insurance with pre-tax dollars.

HSA Contributions (via Payroll)

• Reduces taxable income for federal, FICA, and state taxes
• 2026 limit: $4,300 (self-only) / $8,550 (family)
• Must have a qualifying HDHP

Healthcare FSA

• Pre-tax reduction for medical expenses
• 2026 limit: $3,300
• Use-it-or-lose-it (limited rollover)

Dependent Care FSA

• Pre-tax childcare expenses
• $5,000 limit per household
• Reduces federal, FICA, and state taxes

Commuter Benefits (Transit/Parking)

• Pre-tax transit pass benefit: up to $315/month in 2026
• Pre-tax parking: up to $315/month in 2026
• Reduces federal and FICA taxes

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Post-Tax Voluntary Deductions

These are taken after taxes are calculated — no immediate tax benefit, but different long-term advantages.

Roth 401(k) Contributions

Same contribution limits as traditional 401(k), but contributions are post-tax. Qualified withdrawals in retirement are completely tax-free — including earnings.

Supplemental Life Insurance

Employer-provided life insurance above $50,000 of coverage creates imputed income (taxed). Additional voluntary life insurance premiums are typically post-tax.

Disability Insurance

Long-term disability premiums are often post-tax. The benefit: if you ever receive disability benefits, they come to you tax-free (because premiums were paid after tax).

Charitable Payroll Deductions

Many employers offer payroll deductions for United Way or other charities. These are post-tax but may qualify for itemized deduction on your return.

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Complete Example: $60,000 Salary in California

Gross annual salary: $60,000 Pay frequency: Biweekly (26 paychecks) Gross per check: $2,307.69

Deduction	Annual	Per Paycheck
Traditional 401(k) (6%)	$3,600	$138.46
Health insurance premiums	$1,800	$69.23
Federal income tax (est.)	$5,300	$203.85
Social Security (6.2%)	$3,600	$138.46
Medicare (1.45%)	$870	$33.46
California state tax (est.)	$2,100	$80.77
CA SDI (1.1%)	$660	$25.38
Total deductions	$17,930	$689.62
Net take-home	$42,070	$1,618.08

Effective take-home rate: ~70% of gross.

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Why Pre-Tax Deductions Beat Post-Tax

Consider $200/month in 401(k) contributions:

• Post-tax equivalent: You’d need to earn $256.41 to have $200 left after 22% federal tax
• Pre-tax: $200 directly reduces taxable income — $200 goes to retirement, you only “lose” $156 in take-home pay

Pre-tax benefits give you a built-in 22–32% “bonus” on every dollar you contribute, depending on your bracket.