Module 1 of 11 12 min
Understanding Your Paycheck
Gross vs. net pay, pay stubs, and the W-4.
Course lessons
Step 1
The lesson
Your gross pay is what you earned: hours × hourly rate, or your salary for the period. Your net pay (take-home pay) is what actually lands in your account after deductions.
- Social Security: 6.2% of your pay.
- Medicare: 1.45% of your pay. Together with Social Security, these are called FICA taxes.
- Federal income tax withholding: an estimate of your income tax, based on your pay and the W-4 form you fill out when you're hired.
- State income tax: depends on the state. Texas has none; many states do.
- Benefits: health insurance premiums or retirement contributions, if you sign up.
Key term
W-4
A form you give your employer that tells them how much federal income tax to withhold from each paycheck.
Your pay stub shows each deduction, plus year-to-date (YTD) totals. Check it — mistakes happen, and it's your money.
Pay frequency matters for budgeting: biweekly (every two weeks) means 26 paychecks a year; semimonthly (twice a month) means 24.
Step 2
See it
Gross pay of $520.00, minus Social Security of $32.24, Medicare of $7.54, and federal income tax withholding of $26.00, leaves net pay of $454.22. No state income tax in Texas.
- Gross pay
- $520
- Social Security (6.2%)
- −$32
- Medicare (1.45%)
- −$8
- Federal income tax withheld (5% estimate)
- −$26
- State income tax (Texas)
- $0
- Net pay87% of gross
- $454
Step 3
Real-world example
Jordan's first paycheck surprise
Jordan works 40 hours at $13 an hour and expects $520. The deposit is about $454.
Nothing went wrong. FICA taxes and income tax withholding came out first. From now on, Jordan budgets from net pay — and checks each pay stub to make sure the hours and rate are right.
Step 4
Try it: paycheck calculator
Put in your own hourly pay and hours to see what you'd actually take home.
Your numbers
Varies by income and your W-4. Check a real pay stub for yours.
Texas has no state income tax. Other states do.
Results
Gross pay
$520.00
40 hours × $13.00
Take-home (net) pay
$454.22
87% of gross
| Gross pay | $520.00 |
|---|---|
| Social Security (6.2%) | −$32.24 |
| Medicare (1.45%) | −$7.54 |
| Federal income tax (5%) | −$26.00 |
| State income tax (0%) | $0.00 |
| Retirement (0%) | $0.00 |
| Net pay | $454.22 |
Social Security and Medicare (together called FICA) are set by law. Income tax withholding is an estimate — your actual tax is settled when you file a return.
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Step 5
Knowledge check
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 6
Summary
Gross pay is what you earn; net pay is what you receive after deductions like Social Security (6.2%), Medicare (1.45%), income tax withholding, and any benefits. Your W-4 controls federal withholding. Check every pay stub and budget from net pay.
Step 7
What you should remember
- Gross = earned. Net = take-home.
- FICA = Social Security 6.2% + Medicare 1.45%.
- The W-4 sets your federal withholding.
- Biweekly = 26 paychecks; semimonthly = 24.
- Check your pay stub.
Finished the lesson?
Mark it complete to track your progress.