Understanding Your First Paycheck: Taxes, Deductions, and Take-Home Pay

Quick Answer: Why Is My First Paycheck So Small?

Your first paycheck is smaller than your agreed salary or hourly rate because your employer withholds federal income tax, state/local taxes (in most states), and FICA taxes (6.2% Social Security + 1.45% Medicare) before you receive your pay. If you enrolled in benefits like health insurance or a 401(k), those deductions shrink your check even more. Most workers take home roughly 65–75% of their gross pay.

Formula: Gross Pay − Taxes − Deductions = Take-Home Pay (Net Pay)

What Is a Paycheck (and What Is a Pay Stub)?

Your paycheck is the payment itself, whether it arrives as a direct deposit or a physical check. Your pay stub (also called an earnings statement) is the detailed receipt attached to it. The stub breaks down exactly how your employer calculated the amount deposited into your account.

What you will find on a pay stub

• Personal information: Your name, the last four digits of your Social Security number, and your employee ID.
• Pay period dates: The start and end dates the paycheck covers. If you started mid-period, your first check covers fewer days.
• Earnings: Your gross pay broken down by type (regular hours, overtime, bonuses, tips).
• Taxes: Federal income tax, state/local taxes, Social Security, and Medicare, each listed separately.
• Deductions: Pre-tax and post-tax items like health insurance, 401(k), and union dues.
• Net pay: The final amount you receive after all withholdings.
• YTD (year-to-date) totals: Running totals for the calendar year so you can track cumulative earnings and withholdings.

Why you should review every pay stub

Payroll mistakes happen. An incorrect filing status, a missing benefit election, or wrong hours can cost you money. Get in the habit of checking your pay stub each pay period, especially during your first few months at a new job.

Gross Pay vs. Net Pay: Why Your Paycheck Is Smaller Than You Expected

This is the part that catches almost every new worker off guard. The salary or hourly rate you agreed to during the hiring process is your gross pay, the total before anything is taken out. The amount that actually shows up in your bank account is your net pay (also called take-home pay).

For most people, take-home pay lands around 65–75% of gross pay. If you earn $40,000 a year, you might take home somewhere between $26,000 and $30,000 depending on your state, filing status, and benefit elections.

Where does the rest go?

Your employer is legally required to withhold certain taxes from every paycheck. On top of those mandatory withholdings, you may have chosen voluntary deductions when you filled out your new-hire paperwork. The typical order looks like this:

1. Gross pay (your total earnings for the period)
2. Minus pre-tax deductions (401(k), HSA, health insurance premiums)
3. Equals taxable wages
4. Minus tax withholdings (federal, state/local, FICA)
5. Minus post-tax deductions (Roth 401(k), union dues, garnishments)
6. Equals net pay (your take-home amount)

Prorated first paychecks

If your start date fell in the middle of a pay period, your first check covers only the days you actually worked, not the full two weeks (or month). This is normal. Your second paycheck should reflect a full pay period and give you a better picture of your ongoing take-home pay.

Taxes Deducted From Your First Paycheck

Taxes are the biggest chunk of paycheck deductions for most workers. Below is what each one is and why it exists.

Federal income tax

The amount withheld depends on your W-4 form, which you filled out when you were hired. Your employer uses the information on your W-4 (filing status, dependents, additional withholding) along with IRS withholding tables to calculate how much federal tax to take from each check.

In 2026, federal tax brackets for single filers range from 10% to 37%. The standard deduction for a single filer is $16,100, which means the first $16,100 of your annual income is not subject to federal income tax. For most entry-level workers, the effective federal tax rate falls between 10% and 15%.

The 2026 W-4 has been updated under the One Big Beautiful Bill Act (OBBBA). Notable changes include a new exemption checkbox and an expanded deductions worksheet that covers qualified tips and overtime income. The Child Tax Credit has also increased to $2,200 per qualifying child.

State and local income tax

Most states impose their own income tax on top of federal. Rates and structures vary widely. Some states use flat rates, others use progressive brackets, and nine states charge no state income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Nine additional states are cutting income tax rates in 2026.

Some cities and counties levy local income taxes as well. If you work in New York City, for example, you pay city tax on top of New York state tax.

FICA: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. These taxes fund two programs:

• Social Security (6.2%): Pays for retirement and disability benefits. In 2026, this applies to the first $184,500 of wages (up from $176,100 in 2025). Once your year-to-date earnings hit that cap, Social Security withholding stops for the rest of the year.
• Medicare (1.45%): Pays for healthcare for Americans 65 and older. There is no wage cap for Medicare. An additional 0.9% applies to wages over $200,000 (single filers).

Combined, FICA takes 7.65% of your gross wages. Your employer pays a matching 7.65% on their side, but only your portion appears on your pay stub. At entry-level pay, FICA is often the second-largest deduction after federal income tax.

Other Common Paycheck Deductions

Beyond taxes, your employer may withhold money for benefits you elected during onboarding. The difference between pre-tax and post-tax deductions matters because pre-tax items actually save you money.

Pre-tax deductions (reduce your taxable income)

These are subtracted from your gross pay before taxes are calculated, which means they lower the amount of income subject to tax:

• Health, dental, and vision insurance premiums: When offered through a Section 125 cafeteria plan, these reduce both income tax and FICA wages.
• 401(k) or 403(b) contributions: Reduce federal and state taxable income, but not FICA wages. If your employer offers a match, contributing enough to get the full match is money you would otherwise leave on the table.
• HSA (Health Savings Account): Pre-tax through payroll, reducing both income and FICA wages. Available if you have a high-deductible health plan.
• FSA (Flexible Spending Account): Pre-tax for medical or dependent care expenses, up to annual limits.

Post-tax deductions (do not reduce taxable income)

These come out after taxes are calculated:

• Roth 401(k) contributions: Taxed now, but withdrawals in retirement are tax-free.
• Union dues: Required for union members.
• Wage garnishments: Court-ordered deductions for student loans, child support, or other debts.
• Voluntary benefits: Supplemental life insurance, disability insurance, charitable payroll deductions.

Why the distinction matters

A $100 pre-tax deduction does not reduce your take-home pay by the full $100, because it also lowers the taxes you owe. A $100 post-tax deduction, on the other hand, reduces your take-home pay by exactly $100. Knowing this can change how you weigh your benefit options.

How to Read Your Pay Stub Line by Line

Let's walk through a concrete example. Meet Sarah: she just started a job earning $50,000 per year, is paid biweekly (26 pay periods), files as single, and works in a state with a 5% flat income tax. She elected health insurance at $75 per paycheck (pre-tax) but has no 401(k) yet.

Step 1: Gross pay

$50,000 ÷ 26 = $1,923.08

This is the top line on her pay stub, her total earnings for the two-week period.

Step 2: Pre-tax deductions

• Health insurance: −$75.00

Taxable wages for income tax: $1,923.08 − $75.00 = $1,848.08

Because health premiums go through a Section 125 plan, this deduction also reduces her FICA wages to $1,848.08.

Step 3: Tax withholdings

• Federal income tax: ~$175.00 (based on single filer W-4, $16,100 standard deduction annualized)
• State income tax (5%): ~$92.40
• Social Security (6.2%): $1,848.08 × 0.062 = ~$114.58
• Medicare (1.45%): $1,848.08 × 0.0145 = ~$26.80

Total taxes: ~$408.78

Step 4: Post-tax deductions

Sarah has none in this example.

Step 5: Net pay

$1,923.08 − $75.00 − $408.78 = $1,439.30

Sarah takes home roughly $1,439 per paycheck, or about 74.8% of her gross pay. Over the year, that is approximately $37,420 in take-home pay from a $50,000 salary.

What about YTD totals?

Year-to-date columns on your pay stub show running totals since January 1. They help you track how close you are to limits like the Social Security wage base ($184,500 in 2026) and check whether your annual withholdings are on pace. If YTD federal tax withheld looks unusually high or low compared to your expected tax bracket, it may be time to update your W-4.

What to Do After You Get Your First Paycheck

Once you have your first paycheck in hand, there are a few things worth doing right away.

1. Verify your information

Check that your name, the last four digits of your SSN, hours worked (if hourly), and pay rate are all correct. Mistakes are easiest to fix early.

2. Review your withholdings

Compare what was withheld to what you expect based on your W-4. If your federal withholding seems too high, you may have left Step 3 (dependents) or Step 4(b) (additional deductions) blank. If it seems too low, consider adding extra withholding in Step 4(c). You can submit a new W-4 to your employer at any time.

3. Model your paycheck going forward

Use the Paycheck Calculator to estimate future paychecks under different scenarios. What happens if you contribute 5% to a 401(k)? How would your take-home pay differ in a no-income-tax state? Running these numbers helps you plan before making changes.

4. Build a budget around your actual take-home pay

Base your budget on net pay, not gross. One popular starting framework is the 50/30/20 rule: 50% for needs (rent, food, transportation), 30% for wants, and 20% for savings and debt repayment.

5. Start an emergency fund

Even $25 or $50 per paycheck adds up. Aim for at least one month of expenses as your first target, then build toward three to six months over time.

6. Claim your full employer match

If your employer offers a 401(k) match, contribute at least enough to get the full match. A common structure is 50% match on the first 6% you contribute, which means your employer adds 3% of your salary at no cost to you. Not contributing enough to earn that match is leaving part of your compensation behind.

First Paycheck Examples (2026)

These simplified examples use 2026 tax rates to show how different situations affect take-home pay. Your actual numbers will depend on your specific W-4 elections and benefit choices.

Frequently Asked Questions

Tips for New Workers

• Save your pay stubs. Keep digital or physical copies. You will need them for apartment applications, loan approvals, and verifying your W-2 at tax time.
• Do not panic about the gap between gross and net. Losing 25-35% of your gross pay to taxes and deductions is normal. Plan your budget around net pay from day one.
• Use the Paycheck Calculator before your first payday. Knowing your approximate take-home pay in advance prevents sticker shock and helps you budget right away.
• Contribute enough to get your employer's full 401(k) match. That match is part of your compensation. Even small contributions grow over time thanks to compound returns.
• Check your pay stub for errors during your first three months. New employee records are the most likely to contain mistakes. Verify your pay rate, hours, filing status, and benefit deductions.
• Revisit your W-4 after major life changes. Getting married, having a child, or picking up a second job all affect your ideal withholding. Submit an updated W-4 whenever your situation changes.

References

• IRS Topic 751: Social Security and Medicare Withholding Rates — Official FICA tax rates, thresholds, and additional Medicare tax rules.
• IRS Form W-4 and Instructions — Employee withholding certificate and 2026 updates under the OBBBA.
• SSA Contribution and Benefit Base — Annual Social Security wage base limit ($184,500 in 2026).
• Consumer Financial Protection Bureau: Understanding Taxes and Your Paycheck — Educational resource on paycheck taxes for young workers.
• IRS Publication 15-T (Federal Income Tax Withholding Methods) — Percentage and wage-bracket methods employers use to calculate federal withholding.
• Tax Foundation: 2026 State Tax Changes — Overview of state income tax rate changes taking effect in 2026.