Gross salary is the number on your offer letter. Net pay is what actually hits your bank account. The gap between the two surprises most people – and understanding it is essential for any realistic budget, savings goal, or financial plan.

The Five Things That Reduce Your Gross Pay

1. Federal Income Tax

The US uses a progressive marginal tax system. For 2025, rates run from 10% on the first $11,600 (single) to 37% on income over $609,350. Critically, not all your income is taxed at your top rate – only the slice in each bracket. And the standard deduction ($14,600 for single filers in 2025) reduces your taxable income before any tax is calculated.

2. FICA – Social Security (6.2%)

You pay 6.2% of your gross wages toward Social Security, up to the wage base limit of $168,600 in 2025. Your employer matches this. If you earn over $168,600, you stop paying SS tax for the rest of the year.

3. Medicare (1.45%)

An additional 1.45% on all wages with no cap. High earners (above $200,000 single, $250,000 joint) pay an additional 0.9% Medicare surtax.

4. Pre-Tax Benefits

401k contributions, health insurance premiums, HSA contributions, and FSA deductions all reduce your taxable income – which is why they lower your tax bill while also reducing take-home pay. A 6% 401k contribution on a $65,000 salary reduces your taxable income by $3,900 – saving you roughly $858 in federal taxes at the 22% bracket.

5. State and Local Taxes

Nine states have no income tax (Florida, Texas, Nevada, Washington, South Dakota, Wyoming, Alaska, Tennessee, New Hampshire on wages). Others range from 1% to over 13% (California). Local income taxes exist in cities like New York, Philadelphia, and Detroit.

Quick Rule of Thumb by Salary

• $40,000: take-home roughly $32,000-34,000 ($2,650/mo)
• $60,000: take-home roughly $46,000-48,000 ($3,800/mo)
• $80,000: take-home roughly $59,000-62,000 ($4,900/mo)
• $100,000: take-home roughly $71,000-75,000 ($5,900/mo)

These are estimates for single filers in no-state-income-tax states with no pre-tax deductions. Married filers take home more; state tax and 401k contributions shift the numbers.

Why This Matters Before You Negotiate

When evaluating a job offer, compare net pay to net pay – not gross to gross. A $75,000 offer in Texas vs. a $78,000 offer in California may actually favor Texas after state income tax. And a salary bump that moves you into the next bracket only taxes the portion above the bracket line – so a $5,000 raise does not mean you lose $5,000 x your new rate.