Topic 08 of 20
Jobs and paychecks: what you earn and keep
The number in a job offer and the number that lands in your bank account are never the same, and the gap surprises almost everyone the first time. Knowing what fills that gap lets you check your pay, plan your budget and compare offers properly.
Jobs and paychecks guides
From gross to net
Gross pay is what you earn before anything comes out: hours times rate, or your salary divided by pay periods. Net pay, or take-home pay, is what is left after:
- Required taxes: federal income tax withholding (set by your W-4), Social Security and Medicare (FICA), and state or local income tax where they apply.
- Pre-tax deductions you chose: health insurance premiums, retirement contributions, flexible spending or health savings accounts. These lower the income that is taxed.
- After-tax deductions: Roth retirement contributions, some insurance, union dues or wage garnishments.
How big the gap is depends on your state, your benefits and your W-4, so the guides work from your own stub rather than a rule of thumb.
Your choices show up on the stub
Some of the gap between gross and net is money you are keeping, not losing. A 401(k) contribution is still yours. An employer match is free money that only arrives if you contribute. Pre-tax health premiums cost less than the same premium paid with after-tax dollars. When you budget, count these as savings and protection rather than lost pay.
Comparing job offers
Put both offers on one page and include: base pay, expected overtime or tips, the employer's share of health premiums and the plan's deductible, retirement match, paid time off, commuting cost and time, and whether the role is W-2 employment or 1099 contract work. A higher salary with an expensive health plan and a long commute can be worth less than it looks.
Hourly, salaried, exempt and non-exempt
Hourly workers are paid for each hour and are usually non-exempt, meaning overtime rules apply. Salaried workers may be exempt or non-exempt depending on their duties and pay level. If you are unsure whether you are owed overtime, the Department of Labor's Wage and Hour Division explains the tests and how to ask questions confidentially.
Keep your own records
Save every pay stub, at least until you have checked it against your W-2 at year end. Errors happen: missed overtime, a wrong tax setting or a benefit you did not choose. Spotting them early makes them easier to fix.
First paycheck checklist
Tick items as you go. Ticks stay on this page only and clear when you leave.
Questions people ask
Why is my first paycheck smaller than expected?
Usual reasons are taxes and benefit deductions you did not budget for, a partial first pay period or a pay schedule where the first check covers fewer days. Compare the hours and dates on the stub with your start date.
Am I entitled to overtime?
Under federal law, non-exempt employees must generally be paid at least one and a half times their regular rate for hours over 40 in a workweek. Whether you are exempt depends on your duties and pay, not just your job title, and some states have stricter rules.
What is FICA on my pay stub?
FICA is Social Security and Medicare tax. Employees pay 6.2% for Social Security, up to a yearly wage limit, and 1.45% for Medicare, and employers pay a matching amount.