The number in an offer letter and the number that lands in your account are different by a wide enough margin to change what apartment you can rent. Almost nobody is told this explicitly, and the gap catches people at every income level.
Here is exactly where the money goes, in the order it leaves.
The order matters
Payroll processes deductions in a specific sequence, and the sequence is why some benefits are worth more than they cost.
First, gross pay for the period. Second, pre-tax deductions come out. Third, taxes are calculated on what remains. Fourth, post-tax deductions come out. What is left is net pay.
Anything removed in step two escapes the tax in step three. That is the entire reason pre-tax benefits are valuable, and it is worth several hundred dollars a year to most people.
A worked example: $75,000, paid twice monthly
Gross pay per period: $3,125.
Pre-tax deductions: health insurance premium of $180 and a 401(k) contribution of 6%, which is $187.50. Total $367.50, leaving $2,757.50 subject to income tax.
FICA is calculated on a slightly different base — 401(k) contributions reduce income tax but not Social Security and Medicare, while section 125 health premiums reduce both. So FICA applies to $2,945: Social Security at 6.2% is $182.59, Medicare at 1.45% is $42.70.
Federal income tax withholding on $2,757.50, for a single filer with a standard W-4, works out to roughly $250 per period depending on the exact withholding tables.
State income tax varies enormously. In a state with no wage income tax it is $0. At a 5% effective state rate it is roughly $138.
Net pay: $3,125 minus $367.50 of pre-tax deductions, minus $225.29 of FICA, minus roughly $250 federal, minus roughly $138 state, is about $2,144. Annualized, roughly $51,500 in hand from a $75,000 salary — and $4,500 of the difference went into your own 401(k) rather than to anyone else.
FICA, and the half you never see
Social Security is 6.2% of wages, but only up to the annual wage base — $184,500 for 2026. Cross it and the deduction stops for the rest of the year, which is why high earners see their paycheck jump in the fall.
Medicare is 1.45% with no cap at all, plus an Additional Medicare Tax of 0.9% on wages above $200,000 for single filers and $250,000 for married filing jointly. Those thresholds are fixed in statute and are not indexed for inflation.
What the stub does not show is that your employer pays a matching 7.65% on the same wages. Your total compensation includes that money; you simply never see it. It is the single largest invisible component of the gap between what you cost and what you earn.
Why pre-tax deductions cost less than they look
A $200 pre-tax 401(k) contribution does not reduce take-home pay by $200. It reduces taxable income by $200, so in a 22% federal bracket the actual reduction in your paycheck is about $156.
Health premiums under a section 125 cafeteria plan do better still, because they escape FICA as well as income tax. A $180 premium reduces take-home by roughly $124 in the same bracket.
Health savings account contributions through payroll get the same treatment, which is why routing HSA money through payroll rather than contributing directly afterward is worth doing when your employer offers it.
Post-tax deductions
These come out after tax and provide no tax benefit: Roth 401(k) contributions, most disability and life insurance premiums above employer-provided coverage, union dues, charitable payroll deductions, and wage garnishments.
Roth contributions belong here by design. You pay the tax now so that qualified withdrawals in retirement are tax-free, which is a trade rather than a loss.
What to do with this
Budget from net pay, never from salary. Multiply your actual deposit by the number of pay periods rather than trusting a percentage estimate, and remember that months with three biweekly paychecks are not extra income — they are the same annual amount distributed differently.
And check the stub against expectations at least once a year. Payroll errors happen, benefit elections carry over incorrectly after open enrollment, and a wrong state on file is a common and expensive mistake for anyone who moved.