Lesson 1 of 11 12 min
Understanding Your Paycheck
Gross vs. net pay, pay stubs, and the W-4.
Written by Mateo LermaLast reviewed 4 sourcesEditorial standards
All lessons in Money After High School
Step 1: The lesson
How do you read a pay stub?
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
A first paycheck: 40 hours at $13
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
Quiz: Understanding Your Paycheck (3 questions)
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
Summary: Understanding Your Paycheck
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
Key takeaways: Understanding Your Paycheck
- 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.
Key terms in this lesson
Finished the lesson?
Mark it complete to track your progress.
Sources and further reading
Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.
- 1.Topic no. 751, Social Security and Medicare withholding rates (opens in a new tab)
Internal Revenue Service · irs.gov
- 2.About Form W-4, Employee's Withholding Certificate (opens in a new tab)
Internal Revenue Service · irs.gov
- 3.Tax Withholding Estimator (opens in a new tab)
Internal Revenue Service · irs.gov
- 4.Minimum Wage (opens in a new tab)
U.S. Department of Labor · dol.gov
Last checked September 2026: Social Security and Medicare tax rates; the W-4 form. Rules and numbers like these can change — check the official source before making a decision.
Cite this lesson
Financial Literacy Club. (2026, September). Understanding your paycheck. https://learnwithflc.org/courses/money-after-high-school/paychecks
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