Understanding Your Paycheck: Where Did My Money Go?
Getting your first paycheck and noticing it's less than expected is a rite of passage — and a confusing one. This lesson explains every line on a typical pay stub, why taxes come out before you ever see the money, and how to make sure the withholding is roughly right.
Gross pay vs. net pay
The number your employer agrees to pay you is called gross pay. The number that actually hits your bank account is net pay — what's left after taxes and deductions. The difference can be 20–35% of your gross pay, which surprises a lot of first-time workers.
What you earned before deductions — this is the number in your job offer
What you actually receive — gross pay minus taxes and other deductions
What gets deducted and why
Federal income tax is withheld based on how much you earn and your W-4 form. Social Security and Medicare taxes (FICA) come out at a fixed 7.65% for most employees. State income tax depends on your state — some have none. Other deductions like health insurance are voluntary or employer-specific.
A real example
Say you work 20 hours at $14/hour in a state with income tax. Gross pay: $280. After roughly 22% in total taxes and deductions, net pay comes to about $218. That $62 gap is real money — and budgeting from your net pay (not gross) is the only way to avoid overspending.
What is a W-4 and why it matters
When you start a job, you fill out a W-4 that tells your employer how much federal tax to withhold. Too little withheld means you owe money at tax time. Too much means a refund — but that's an interest-free loan to the government all year. For most young workers with one job, the default settings work fine.
If you have multiple jobs, the IRS has a free withholding calculator that helps you get it right.
You earn $280 gross. After taxes and deductions totaling about 22%, what's your approximate net pay?
Recap
- Gross pay is what you earn; net pay is what you take home after taxes and deductions.
- FICA (Social Security + Medicare) comes out at 7.65% for most workers, plus federal and state income tax.
- Always budget from net pay — the money you don't take home isn't yours to plan with.
- Next up: putting all of this together into a simple budget that actually sticks.