Everything deducted from your paycheck, explained

By Amy Marturana Winderl | Published on October 21, 2025

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Congratulations, you’ve earned your first paycheck! You’re probably excited, as you should be—you put in work, and have some cash in the bank to show for it. (See, adulting can be cool sometimes.) But if you’re like many newly employed people out there, you might also be a little bit confused after running the numbers and noticing that your take-home pay isn’t exactly as much as you thought it would be.

What’s up with that? Upon further examining your paystub (or direct deposit slip) at your first job, you’ll notice a few line items categorized as “deductions.” Deductions are all of the things that were taken out of your gross pay, i.e. your total original pay. After deductions, you’re left with your net pay, or take-home pay. While there are some deductions you can’t really control, others are part of your employee benefits package, so you can adjust them according to what works for you and your budget.

It’s OK to be a bit baffled on your first payday. We’ve all been there before. To help clear up the confusion, we broke down typical paycheck deductions, where your earnings are going, and how much control you have over it.

Federal Taxes

A big chunk of each paycheck goes toward federal tax payments. Federal taxes include all the taxes you owe the U.S. federal government, including your income tax and your contributions to social security tax and medicare tax.

The amount you’ll pay in federal income tax will be a certain percentage of your income, and depends on not only how much you make but also how many allowances and/or exemptions you claim on the W-4 form that you sign when you first start a job.

Richard Laviña, CPA and founder of tax-filing app Taxfyle, says that the best way to ensure you’re having the right amount of tax withheld each pay period is to talk with your company’s HR department. You can tell them if you’re single or married, and how many dependents you have, and they should be able to help you figure out how to fill out your form W-4 accurately. If you work at a small business without an HR department you may want to ask a financial planner for help.

Why does tax withholding matter? If you claim too many exemptions, you may not have enough taxes withheld and will owe the IRS more money than you planned for when it’s time to file your taxes in April. That could open the door to penalties and interest. If you claim too few exemptions, you’ll get a nice tax return in the spring, but you’ll miss out on enjoying that money throughout the year.

The amounts taken out of your paycheck for social security and medicare are based on set rates. With the 2024 tax code, 12.4% of your income goes toward social security, and 2.9% goes toward medicare tax — but, if you’re employed by a company full-time, they pay half of your social security and medicare responsibilities, so you should only see 6.2% and 1.45% taken from your pay, respectively. These taxes are often labeled “FICA” or “FICA taxes” (which stands for Federal Insurance Contributions Act) on your paystub.

Now, things work a bit differently if you’re employed as an independent contractor or have any other employment status where your employer doesn’t withhold your pay, Laviña explains. He suggests consulting a CPA to make sure you’re paying your taxes properly and on time.

Along the same lines, you want to make sure you’re saving money throughout the year for taxes, as appropriate for your tax bracket.

State and local taxes

The majority of US states require you to also pay state income tax, which will be listed as another line item on your paystub. Some states may impose additional taxes — for example, California residents have a short-term disability tax deductions from their pay. Similar to your W-4, you will fill out your state income tax forms once hired.

On top of that, certain cities and counties require you to pay income tax to them. (Some don’t, and instead collect taxes solely by taxing homeowners.) The best way to find out if your state and city taxes its residents is by using an online calculator. This one from Smart Asset can show your tax rate based on your income and where you live.

Investment account contributions

If you’re a full-time employee, your company may give you the opportunity to contribute to a retirement fund, like a 401(k). This money is a pre-tax payroll contribution, which translates to a pre-tax deduction. In other words, whatever amount you choose to contribute from each paycheck is deducted from your total taxable income, explains Cristina Livadary, CFP. “So say your salary is $50,000, and you contribute $5,000 pre-tax over the year to a 401(k), you’ll only be taxed as if you make $45,000.”

Example listed above is for illustrative purposes only. Individual results vary.

Worried you don’t have enough money to contribute to your retirement fund just yet? If you have student loans, you may be able to take advantage of a new employer match program. Basically, you can ask your employer to match your loan payment amount by contributing an equivalent amount of money to your retirement fund. That way, you don’t have to choose between paying off your loans or saving for retirement.

Laviña suggests always asking the HR department at a new job about the retirement plan they offer and whether or not they match—they may contribute a percentage of what you chose to contribute yourself, giving you some additional retirement savings.

Other employee benefits

Depending on the company you work for, you may have the opportunity to opt into a handful of employee benefits. The employer takes these costs from the employee’s paycheck automatically.

If you sign up for your employer-provided health care, the cost of your health insurance will come out of your paycheck. Livadary notes that any company with over 50 employees is required to offer health care benefits, and the HR department should provide you with details about it when you start. Typically, the company pays part of your insurance premium, though there are some companies out there that will cover the total amount, leaving you with no monthly insurance premium deduction. If your employer lets you contribute to a flexible spending account (FSA) or health savings account (HSA), the amount you choose to contribute will also be taken out of your paycheck as a payroll deduction.

Other benefits like commuter plans, life insurance, and disability insurance may also be deducted from your pay, depending on whether or not you opt into them and if your employer picks up the bill fully or partially.

While you may be surprised to see deductions coming out of your first paycheck, once you know what number to expect to see in the bank, you’ll be able to plan and budget so that you’re using those paychecks in the smartest way possible.

How to free up more money in your budget

After all these deductions, your take-home pay might not be nearly as much as you expected. If you have student loans and are worried you won’t have enough each month to make your payments, it’s time to examine your benefits and your budget. Here are a few things you can do to free up a little more money each month.

• Adjust your benefits: If health care costs, life insurance costs, HSA contributions, or retirement account contributions are eating away your paycheck, consider signing up for a less expensive plan or reducing your contributions to an amount you can afford. That will result in fewer deductions—and therefore more take-home pay.

• Research tax credits and deductions: At tax time, make sure you’re taking advantage of every tax deduction you can. If you have student loans, you can deduct your interest from your tax liability. You may also qualify for other tax credits, like the American Opportunity Tax Credit or Lifetime Learning Tax Credit. These credits reduce the amount of federal and state income tax you pay and can result in a higher tax refund.

• Sign up for an employer repayment plan: Some employers also offer student loan repayment plans. With this kind of plan, your employer will help you pay down your student loans as an employee perk. Ask your HR department to see what’s available.

• Examine your monthly budget: If your paycheck isn’t going as far as you’d like it to, take a look at your spending. Try to cut back in areas like entertainment, eating out, clothing purchases, or unnecessary subscription services to make sure you’re living within your means.

• Consider refinancing: If you’ve already adjusted your paycheck contributions, optimized your tax filing, and streamlined your budget, the next step is to look at ways to reduce your debt obligations. That includes refinancing your student loans.

One of the best times to refinance is after you get a new job. A new, higher income can help you qualify for lower interest rates. That can reduce your monthly payments, freeing up more room in your monthly budget. A lower interest rate can also save you money over the life of your loan. Ready to see how much you could save? Check your rate for free with Earnest. It’s fast, and it won’t affect your credit.

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About the Author

Amy Marturana Winderl

Amy Marturana Winderl is a freelance writer and editor. Her work has been published on SELF, Bicycling, Yahoo, and more.

Disclaimer

Disclaimer: The opinions expressed by the interview subjects are not necessarily those of Earnest. This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.