How Take-Home Pay Is Calculated
Your take-home pay (net pay) is what you actually receive after all deductions from your gross salary. The main deductions are federal income tax, Social Security, Medicare, state tax, and any pre-tax contributions like 401(k) or HSA.
Step-by-Step
- Start with gross pay — your annual salary plus other income
- Subtract pre-tax deductions — 401(k), HSA, health insurance premiums
- Apply standard or itemized deduction — whichever is larger
- Calculate federal income tax — using progressive tax brackets
- Calculate FICA taxes — Social Security (6.2%) and Medicare (1.45%)
- Apply state and city tax — varies by location
- Add back credits — Child Tax Credit reduces your tax bill
- Result is take-home pay
2026 Federal Tax Brackets
Single Filers
- 10% on income up to $12,400
- 12% on $12,401 to $50,400
- 22% on $50,401 to $105,700
- 24% on $105,701 to $201,775
- 32% on $201,776 to $256,225
- 35% on $256,226 to $640,600
- 37% on income over $640,600
Married Filing Jointly
- 10% on income up to $24,800
- 12% on $24,801 to $100,800
- 22% on $100,801 to $211,400
- 24% on $211,401 to $403,550
- 32% on $403,551 to $512,450
- 35% on $512,451 to $768,700
- 37% on income over $768,700
2026 Standard Deduction
- Single: $16,100
- Married Filing Jointly: $32,200
- Head of Household: $24,150
- Age 65+ additional: $2,050 (single/HoH) or $1,650 (married, per spouse)
FICA Taxes: Social Security & Medicare
FICA taxes fund Social Security and Medicare. Every W-2 employee pays:
- Social Security: 6.2% on the first $184,500 of wages (2026 cap)
- Medicare: 1.45% on all wages, plus an additional 0.9% on wages over $200,000 (single) or $250,000 (married filing jointly)
Self-employed workers pay both the employee and employer portions — a total of 15.3% (12.4% Social Security + 2.9% Medicare).
2026 OBBB Changes: No Tax on Tips and Overtime
The One Big Beautiful Bill Act introduced two new federal income tax exemptions effective 2026:
- Qualified tips: Up to $25,000/year excluded from federal income tax
- Qualified overtime: Up to $12,500/year excluded from federal income tax
Both exemptions phase out completely if your income exceeds $150,000 (single) or $300,000 (married filing jointly). FICA taxes still apply to all tip and overtime income — only federal income tax is reduced.
Child Tax Credit (2026)
$2,200 per qualifying child under age 17. The credit phases out at $200,000 AGI for single filers and $400,000 for married filing jointly, reducing by $50 for every $1,000 over the threshold.
Tips to Increase Take-Home Pay
- Maximize 401(k): Contributions up to $23,500/year ($31,000 if 50+) reduce taxable income dollar-for-dollar
- Use an HSA: If you have a high-deductible health plan, contribute up to $4,300 (individual) or $8,550 (family) for triple tax benefits
- Adjust W-4 withholding: If you get a large refund each year, you may be over-withholding — adjust your W-4 to keep more per paycheck
- Claim all eligible credits: The Child Tax Credit alone can add $2,200 per child to your annual take-home
- Review state taxes: Seven states have no income tax — Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming