Your first paycheck, line by line.
Your offer letter said one number. A smaller number landed in your bank. The lines between those two numbers each have a name — and once you know the names, your paystub stops being a guess.
Two numbers, and the lines between them.
Your paycheck is two numbers and a list. The first number is what you earned — your gross pay. The second is what landed in your bank — your take-home, or net. The list in between is every deduction the system pulled before the money reached you.
Your paycheck isn’t shrinking. It’s being divided. The names of the dividers are worth knowing.
Most people never learn the names. The check arrives, the bills get paid, and the gap between gross and net stays a fog. Six minutes from now the fog is gone — and your paystub reads like a document instead of a verdict.
The five-way split.
A typical paycheck splits five ways. For a 20-year-old earning $40,000 in a mid-tax state, contributing 4% to a Traditional 401(k), the picture looks like this:
This is where it goes.
- Federal tax $2,600 6.4%
- FICA $3,060 7.7%
- State tax $1,920 4.8%
- 401(k) pre-tax $1,600 4.0%
- Take-home $30,820 77.1%
Each segment is a different system pulling its share. Federal income tax goes to the IRS, computed on a progressive bracket. FICA is Social Security plus Medicare, a flat 7.65% on most wages. State income tax varies — eight states have none; the rest range from about 3% to 13%. 401(k) pre-tax is your own money, set aside before the IRS sees it. Take-home is what’s left.
The proportions move with your salary and state, but the picture is the same. We’ll walk each piece in turn.
Federal income tax and FICA.
The two federal pieces work differently and it’s worth knowing the difference. Federal income tax is progressive — the first chunk of your income is taxed at 10%, the next chunk at 12%, the next at 22%, and so on. Most first jobs land entirely in the 10% and 12% brackets.
FICA is flat. 6.2% to Social Security on the first $168,600 of wages, plus 1.45% to Medicare on every dollar — 7.65% total for almost everyone. No brackets, no deductions to argue with.
The income-tax bill grows in steps as you climb brackets; the FICA bill grows in a straight line. Marginal rates (the bracket the next dollar hits) matter when you’re deciding Roth vs. Traditional; effective rates (the average across all dollars) matter for the annual picture. Both are true. The mental-models guide walks the difference in detail.
State tax and the pre-tax deductions.
State income tax is short. Eight states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Wyoming, Washington — collect none. The rest tax somewhere between 3% and 13%, usually on the same income the IRS taxes.
Pre-tax deductions are the more interesting part. When you defer money into a Traditional 401(k), an HSA, or a Section 125 cafeteria plan (most health, dental, vision, and FSA premiums), that money comes out of gross before federal and state taxes compute. The dollar deferred is a dollar not taxed this year.
Taxes compute on the smaller bar.
Pre-tax deductions come off before the IRS sees your income. The gap between the two bars — $1,600 here — is a tomorrow-money dollar that never hits federal or state tax this year.
Notice what the chart says: $40,000 earned, but only $38,400 ever becomes taxable. The missing $1,600 is doing tomorrow-money work inside your 401(k) — it skipped the tax line entirely. Pre-tax deductions are how a contribution to your future self also lowers your tax this year.
Every line, into one of three piles.
Hold every line on your paystub against the framework from Lesson 1. Each line is doing today-money work, tomorrow-money work, or funding something else entirely:
Every line, into one of three piles.
Today money, tomorrow money, or money funding something else. Reading a paystub is sorting every line into one of those three.
Be there when needed
The dull-on-purpose half.
- Take-home
- Health / dental / vision premiums
- HSA — if you spend it
Grow over time
The restless-on-purpose half.
- Traditional 401(k)
- Roth 401(k)
- HSA — if you invest it
Funds something else
Money your future self will not personally see.
- Federal income tax
- FICA
- State income tax
The three piles aren’t equal in size. Today money is most of what you’ll see — rent, groceries, gas, insurance you might use this year. Tomorrow money is whatever you choose to set aside. The “neither” pile — taxes — is non-negotiable on the day you’re paid, and the only lever you have is to keep it as small as the law allows by using the pre-tax deductions intentionally.
What to do this week.
Three steps. Twenty minutes total, including the time it takes to log in.
- Pull your most recent paystub — paper or PDF from your payroll portal (Workday, ADP, Paylocity, Gusto, or wherever your employer hosts it).
- Read each line aloud. Federal, FICA, state, pre-tax deductions, post-tax deductions, take-home. Note any line whose name you can’t explain in a sentence.
- Plug your real numbers into the paycheck calculator. If the calculator’s net within $20–30 of your paystub, you understand it. If it’s off, the calculator’s explainer cards walk through each piece.
Look up any line you couldn’t name in the glossary. Most payroll codes are abbreviated; the long names are in there.
You can read a paystub now.
Six lines, three piles, two numbers. That’s all a paystub is. The fog is gone — every line has a name, and the names tell you which job each dollar is doing.
- Gross is what you earned; net is what arrived. The lines between are the system pulling its share.
- Federal tax is progressive; FICA is flat 7.65%; state varies by state.
- Pre-tax deductions reduce taxable income before tax computes — a contribution and a tax cut in one move.
- Every line is today money, tomorrow money, or funding something else.