401(k) Loan Repayment Paycheck Impact: After-Tax Math (2026)

Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change periodically, always check current IRS/state guidance or consult a professional.

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Quick Answer: How much does a 401(k) loan cut your paycheck?

A $20,000 401(k) loan at 7.75% over 5 years costs about $186 per biweekly paycheck ($403 per month) and reduces net pay by the same dollar amount in every state. The repayment is a post-tax payroll deduction, so it does not change federal or state withholding. On $80,000 single biweekly, that drops Texas net pay from $2,504.23 to $2,318.17 (-7.4%) and California net pay from $2,322.59 to $2,136.53 (-8.0%).

And no, the loan principal is not double-taxed. Only the interest you pay yourself is taxed twice, which usually adds up to roughly $920 across the life of a 5-year loan.

Key Takeaways

Loan repayments are post-tax payroll deductions. They reduce net pay dollar-for-dollar but never touch federal or state withholding.
The dollar hit is the same in every state. A $186 biweekly repayment cuts $186 from net pay in Texas, California, or anywhere else. Only the percentage of net pay differs.
The principal is not double-taxed. You borrowed pre-tax dollars and you are restoring pre-tax dollars; that money gets taxed once, at retirement. Only the interest you pay yourself is taxed twice.
The 2026 max is the lesser of $50,000 or 50% of your vested balance. Most plans charge Prime + 1%, which works out to about 7.75% with Prime at 6.75% in March 2026.
Leaving the job no longer means a 60-day cliff. Under the TCJA rules, you have until your federal tax-filing deadline (with extensions) for the year of offset to roll the unpaid balance into an IRA or new 401(k).
About 1 in 5 participants now has a loan outstanding. Fidelity's full-year 2025 data (reported in March 2026) puts the rate at 19.4%, up from 18.9% in 2024.

How 401(k) Loan Repayments Come Out of Your Paycheck

When you take a 401(k) loan, your employer sets up a payroll deduction that pulls the loan payment from each paycheck and routes it back into your retirement account. The deduction starts on the first pay date after the loan is funded and runs for as long as the amortization schedule says.

It's a post-tax deduction

This is the part that surprises people. The IRS treats a 401(k) loan repayment as after-tax, not pre-tax. Your employer cannot legally treat the payment as a contribution, because it isn't one. You are paying yourself back for money you already withdrew, so the repayment lands on the same line of your paystub as a Roth 401(k) deferral, a wage garnishment, or a parking deduction. It comes out of net pay, not gross.

That has two practical consequences:

Your W-2 Box 1 wages do not change because of the loan. The repayment is invisible to your tax return.
Your federal and state withholding stay at the no-loan baseline. The repayment is taken from what is left after taxes are calculated, not from gross pay.

Required amortization rules

The Internal Revenue Code section that governs all of this (IRC §72(p)) requires three things on every plan loan:

Substantially level amortization with payments at least quarterly.
A 5-year maximum repayment term, except for loans used to buy a primary residence, which can run longer.
A maximum loan size of the lesser of $50,000 or 50% of your vested balance, with a $10,000 floor in some plans.

So your gross pay stays the same, your tax withholding stays the same, and the loan payment carves a fixed slice out of net pay every period for up to 5 years.

The "Double Taxation" Myth, Corrected

Open any thread on Reddit or any blog comparing 401(k) loans to other borrowing and someone will claim that 401(k) loans are double-taxed. That isn't quite right, and it matters because the real cost is much smaller than the myth suggests.

The principal is not double-taxed

Your 401(k) balance is built from pre-tax dollars. When you borrow $20,000, the plan moves $20,000 of pre-tax money out of the market and into your bank account. That money has not been taxed yet.

When you repay the principal with after-tax dollars from your paycheck, you aren't paying tax twice on the same money. You are restoring the account so it can grow back to where it started. Those repaid dollars become part of your pre-tax balance again and will be taxed exactly once, when you withdraw them in retirement, just like every other dollar in the account.

The interest is taxed twice, but the bill is small

The interest piece really is double-taxed. You earn the dollars used to pay interest, the IRS taxes them on the way in, you deposit them into your 401(k), and the IRS taxes them again when you withdraw them at retirement.

Run the numbers and the surcharge is modest. A $20,000 loan at 7.75% over 5 years generates about $4,188 in total interest. At a 22% marginal rate, the second taxation costs you roughly $921 spread across all five years. That's real money, but it's much smaller than the "twice the principal" framing implies, and it doesn't put 401(k) loans far behind a personal loan at a similar rate.

The bigger cost is opportunity cost

The actual headline risk of a 401(k) loan is not the tax math. It's that the borrowed principal sits out of the market while you are repaying it. If your fund averages 8% per year and you take a $20,000 loan, you are paying 7.75% interest to your account but missing out on whatever the market would have done with that $20,000 over five years. In a strong market that gap is much larger than the tax surcharge on interest.

Worked Example: $20,000 Loan, 5 Years, 7.75%

Let's price a 2026 loan and see what hits the paystub.

Loan terms

Principal: $20,000 (within the 50%/$50,000 cap for anyone with a vested balance of at least $40,000)
Term: 60 months (the §72(p)(2)(B) maximum for non-residence loans)
Rate: 7.75% APR (Prime 6.75% in March 2026 plus the typical 1% spread)
Amortization: substantially level, paid through payroll

Payment amounts

Monthly payment: $403.14 (60 payments)
Biweekly equivalent: $186.06 (130 payments at the biweekly periodic rate of 7.75%/26)
Total interest paid: roughly $4,188 on a monthly schedule, $4,154 on a biweekly schedule

How the balance shrinks

On the monthly schedule, your first payment is split about $274 principal and $129 interest. By the final payment, that flips to roughly $400 principal and $3 interest. The interest line moves the most in the first year, which is why prepaying early (if your plan allows it) saves the most.

Whether you prefer to think in monthly or biweekly terms, the steady-state cash impact is what matters for budgeting. About $186 a paycheck if you are paid biweekly, $403 a month if you are paid monthly, $93 a week if you are paid weekly.

Paycheck Impact in Texas and California ($80K Single)

The dollar amount of the loan repayment is the same in every state, but it lands on a smaller net-pay base in high-tax states, so the percentage hit feels bigger. Below is the same $80,000 single filer in Texas (no state income tax) and California (state income tax plus SDI), paid biweekly in 2026, taking the $186.06 loan deduction modeled above.

Texas: $80,000 single, biweekly

Gross pay: $3,076.92
Federal withholding: $337.31
Social Security (6.2%): $190.77
Medicare (1.45%): $44.62
State withholding: $0.00
Net pay (no loan): $2,504.23
Net pay (with $186.06 loan deduction): $2,318.17
Drop: -$186.06 (-7.4% of baseline net)

California: $80,000 single, biweekly

Gross pay: $3,076.92
Federal withholding: $337.31
CA state withholding: $141.65
CA SDI: $40.00
Social Security (6.2%): $190.77
Medicare (1.45%): $44.62
Net pay (no loan): $2,322.59
Net pay (with $186.06 loan deduction): $2,136.53
Drop: -$186.06 (-8.0% of baseline net)

Why the dollar drop is identical

Look closely at the numbers and you'll see federal withholding, state withholding, Social Security, and Medicare are unchanged on both sides of the comparison. The only line that moves is net pay. That's the post-tax mechanic in action: the loan repayment cuts net pay directly without changing any tax line above it.

If you want to see the same math with your salary, your state, and your filing status, plug a custom post-tax deduction equal to your biweekly loan payment into the EHM Tech Paycheck Calculator.

What Happens If You Leave the Job With a Balance

This is the question that turns 401(k) loans from cheap to risky. Most plans accelerate the loan at separation, which means the unpaid balance is due not at the original 5-year endpoint but right after your last paycheck.

The TCJA "qualified plan loan offset" extension

Before 2018, you had 60 days from separation to come up with the cash and roll it into an IRA, or the entire unpaid balance became taxable income (plus a 10% penalty if you were under 59 1/2). The Tax Cuts and Jobs Act fixed this in §13613. Today the unpaid balance is treated as a qualified plan loan offset (QPLO), and you have until the due date of your federal tax return for the year of the offset, including extensions, to roll it over.

In practical terms: if you separate in July 2026 with $12,000 outstanding, you have until April 15, 2027 (or October 15, 2027 if you file an extension) to deposit that $12,000 into an IRA or your new employer's 401(k). Miss that deadline and the $12,000 becomes 2026 taxable income, plus the 10% early-withdrawal penalty if you are under 59 1/2.

Deemed distribution vs loan offset

Two different terms get used interchangeably and they aren't the same thing.

A deemed distribution happens when you miss payments past the IRS "cure period" (the end of the calendar quarter following the quarter of the missed payment). It is taxable, and it generally cannot be rolled over.
A loan offset happens at separation from service when the plan settles the loan against your account balance. It is also taxable if you do nothing, but it can be rolled over by the tax-filing deadline above.

If you are about to miss a payment because of cash flow, prioritize curing the missed payment over almost anything else. A deemed distribution closes the rollover door that an offset leaves open.

Should You Take the Loan? A Quick Checklist

The paycheck math tells you whether you can absorb the repayment. The bigger questions are about what comes next.

Cash-flow check

Run the post-tax loan deduction through the Paycheck Calculator and look at the new net-pay number. Does it cover rent, groceries, existing debt minimums, and at least some discretionary spend? If the loan repayment crowds out essentials, the long-term answer is almost always no. A loan you can't afford is the fastest path to a default and a deemed distribution.

Job-stability check

How confident are you that you'll still be at this employer for the full repayment term? The TCJA rollover extension is generous, but it still requires you to come up with the unpaid balance in cash within months of separating. Recent layoff cycles have made this scenario more common, not less.

Opportunity-cost check

What return are you giving up by pulling principal out of the market for 5 years? If your plan averages 8% and your loan rate is 7.75%, you are paying yourself slightly less than the missed return, even before the second taxation of the interest. The principal isn't earning anything other than the interest you pay yourself. In a strong market that drag is real.

Don't pause your contributions

Your 2026 elective-deferral limit is $24,500 (with $8,000 catch-up at age 50+ and $11,250 at ages 60-63). Loan repayments are not contributions, so they don't shrink that headroom. The biggest long-term mistake borrowers make is pausing contributions to free up cash flow for the loan payment, which means missing the employer match for the entire repayment period. EBRI estimates a single 401(k) loan default can cost $150,000 to $184,000 in lifetime retirement wealth depending on age, and most of that damage comes from missed contributions and matches, not from the tax surcharge on the interest.

2026 Loan Repayment Examples

Each example uses 2026 federal tax tables, single filing status, biweekly pay, no W-4 dependents, and a post-tax payroll deduction equal to the biweekly loan payment. Numbers come from the EHM Tech Paycheck Calculator engine.

Example 1: $20,000 loan, $80K in Texas

Loan terms: $20,000 at 7.75% over 5 years
Biweekly payment: $186.06
Gross pay: $3,076.92 biweekly
Federal tax + FICA: $572.70 (unchanged with loan)
Net pay before loan: $2,504.23
Net pay with loan: $2,318.17
Net-pay drop: -$186.06 per paycheck (-7.4%)

Example 2: $20,000 loan, $80K in California

Loan terms: $20,000 at 7.75% over 5 years
Biweekly payment: $186.06
Gross pay: $3,076.92 biweekly
Federal + state + SDI + FICA: $754.35 (unchanged with loan)
Net pay before loan: $2,322.59
Net pay with loan: $2,136.53
Net-pay drop: -$186.06 per paycheck (-8.0%)
Note: identical dollar drop as Texas, larger percentage because the baseline is smaller

Example 3: $50,000 maxed-out loan, 5 years

Loan terms: $50,000 at 7.75% over 5 years (the §72(p)(2)(A) cap)
Monthly payment: $1,007.85
Biweekly payment: approximately $465.16
Total interest paid: roughly $10,471
Eligibility: requires a vested balance of at least $100,000
Cash-flow caveat: on $80K biweekly, $465.16 per paycheck is over 18% of net in Texas and 20% in California, a serious cash-flow commitment

Example 4: Mid-loan separation

Scenario: separation in July 2026 with $12,000 outstanding on a 5-year $20,000 loan
Old rule: 60 days to roll the balance over or owe tax + penalty
Current rule (TCJA QPLO): until April 15, 2027 (or October 15, 2027 with an extension) to deposit $12,000 into an IRA or new 401(k)
If missed: $12,000 becomes 2026 taxable income, plus 10% penalty if under 59 1/2
Why this matters: the worst-case timeline is now measured in months, not weeks

Frequently Asked Questions

Is a 401(k) loan double-taxed?

Not the principal. The principal you borrow has never been taxed because it was contributed pre-tax. Repaying it with after-tax dollars just restores the pre-tax balance, which gets taxed once at distribution in retirement. Only the interest you pay yourself is taxed twice, once when you earn the dollars and again when you withdraw them. On a $20,000 loan at 7.75% for 5 years, that surcharge totals about $920 across the entire loan.

What happens to my 401(k) loan if I quit or get laid off?

Most plans declare the loan due at separation. Under the Tax Cuts and Jobs Act you have until the due date of your federal tax return for the year of the offset, including extensions, to roll the unpaid balance into an IRA or new employer 401(k). Miss the deadline and the balance becomes taxable income for that year, plus a 10% early-withdrawal penalty if you are under 59 1/2.

Are 401(k) loan payments tax deductible?

No. Both principal and interest are repaid with post-tax dollars. IRC §72(p)(3) explicitly disallows an interest deduction for key employees and most plan-loan interest, so your repayments don't reduce your taxable wages and don't appear on your tax return.

How much will a 401(k) loan reduce my biweekly paycheck?

A $20,000 loan at 7.75% over 5 years costs about $186 per biweekly paycheck. On $80,000 single biweekly, take-home drops from $2,504 to $2,318 in Texas and from $2,323 to $2,137 in California. The dollar drop is identical in every state because the deduction is post-tax.

What is the maximum 401(k) loan amount in 2026?

The lesser of 50% of your vested account balance or $50,000. Some plans apply a $10,000 floor, meaning you can borrow up to $10,000 even if it exceeds 50% of your vested balance. The $50,000 cap is also reduced by the highest outstanding balance of any prior plan loans you held in the 12 months before the new loan.

What interest rate does a 401(k) loan charge in 2026?

Most plans charge Prime + 1% or Prime + 2%. With Prime at 6.75% in March 2026, that's typically 7.75% to 8.75%. The interest goes into your own account rather than to a lender, but it is still calculated and amortized like a normal loan.

Can I keep contributing to my 401(k) while repaying a loan?

Yes. The repayment isn't a contribution, so it doesn't use any of your $24,500 (2026) elective-deferral limit, and it doesn't affect your employer match eligibility. Many borrowers pause contributions to free up cash flow, which is the single biggest long-term cost of taking a 401(k) loan.

What's the difference between a deemed distribution and a loan offset?

A deemed distribution happens when you miss payments past the cure period (end of the calendar quarter following the quarter of the missed payment). It is taxable and generally cannot be rolled over. A loan offset typically happens at separation from service. It is also taxable if not handled, but it can be rolled over until your federal tax-filing deadline (including extensions) for the year of offset.

Practical Tips Before You Borrow

Model the repayment first. Plug your biweekly loan payment into the Paycheck Calculator as a post-tax deduction before signing the paperwork. The number on screen is what you will actually live on.
Don't pause contributions. Repayments don't count toward your $24,500 deferral limit, so pausing your match-eligible contributions during repayment leaves real money on the table. EBRI ties most of the long-term cost of 401(k) loans to missed contributions, not to the interest math.
Cure missed payments fast. A missed payment becomes a deemed distribution at the end of the next calendar quarter, and a deemed distribution generally can't be rolled over. Curing the miss before the cure period closes preserves your options.
Mark your tax-filing deadline if you separate mid-loan. The TCJA gives you until April 15 (or October 15 with an extension) of the year following the offset to roll the balance over. Calendar that deadline the day you leave.
Compare to a personal loan honestly. The interest you pay a 401(k) loan is yours; the interest you pay a personal loan isn't. But a personal loan keeps your principal in the market and isn't accelerated by separation. Run both side by side rather than picking the obvious-sounding one.
Match the loan term to your timeline. If you suspect you might leave the job within a year, a 5-year loan exposes you to the offset rules longer than a 2- or 3-year loan would. Shorter terms also build less interest.

References

IRS: Retirement Topics - Loans — Official IRS overview of 401(k) loan limits, repayment terms, and tax treatment.
IRS: Plan Loan Offsets (QPLO Rules Under TCJA) — How separation-related loan offsets are taxed and the post-TCJA rollover deadline.
IRS: Deemed Distributions - Participant Loans — Authoritative source on when missed payments trigger a deemed distribution and the cure-period rules.
26 CFR §1.72(p)-1: Loans Treated as Distributions — Treasury regulation governing 401(k) loan amortization, cure periods, and tax treatment.
NAPA-Net: 401(k) Balances Climb in 2025, but Hardship Withdrawals Rise (March 2026) — Source for the Fidelity 19.4% loan-utilization figure for full-year 2025.
The Finance Buff: 401(k) Loan Double Taxation Myth — Plain-English breakdown of why the principal is not double-taxed and why the interest portion is the only piece taxed twice.