Your offer letter quotes gross pay — your salary before anything is taken out. Your bank account receives net pay, also called take-home pay. The gap between them is typically 20% to 35% of the headline figure, and the exact size depends on where you live, how you file, and what benefits you have signed up for.
What sits between gross and net
Deductions come out in a fixed order, and the order changes the answer:
- Pre-tax deductions. Traditional 401(k), employee health insurance premiums, HSA and FSA contributions. These reduce the income your tax is calculated on, which is why they are worth more than their face value.
- Federal income tax. Progressive — only the income inside each bracket is taxed at that bracket's rate.
- Social Security. 6.2%, but only up to an annual wage ceiling.
- Medicare. 1.45% on every dollar, with a surtax above $200,000.
- State income tax. Anywhere from nothing to over 13%, depending on the state.
- Local income tax. City or county tax. New York City, Philadelphia, Detroit and most of Ohio charge it; most of the country does not.
- Post-tax deductions. Roth 401(k), union dues, garnishments, some insurance.
The same salary, two outcomes
A single filer on $90,000 with no pre-tax deductions, in the cheapest and most expensive common scenarios:
| Line | Texas | New York City |
|---|---|---|
| Gross pay | $90,000 | $90,000 |
| Federal income tax | −$10,970 | −$10,970 |
| Social Security | −$5,580 | −$5,580 |
| Medicare | −$1,305 | −$1,305 |
| State income tax | None | −$4,352 |
| City income tax | None | −$3,053 |
| State payroll (PFL, DBL) | None | −$380 |
| Take-home pay | $72,145 | $64,359 |
| Share of gross kept | 80.2% | 71.5% |
That is $7,786 a year of difference on the same gross salary — about $649 a month. It is also why a remote offer that looks like a lateral move can be a significant raise or cut depending on where you take it.
Effective rate vs marginal rate
Two numbers describe your tax, and people routinely confuse them. Your effective rate is total tax divided by gross pay — 19.8%in the Texas column above. Your marginal rate is what the next dollar is taxed at, which is 29.7% once federal, state and FICA are stacked.
The marginal rate is the one to use when deciding whether an extra shift, a bonus or a raise is worth it. The effective rate is the one to use when budgeting. Quoting the marginal rate as "the tax I pay" is the single most common error in conversations about pay.
How to increase your net pay
- Contribute to pre-tax accounts. A 401(k) or HSA dollar costs you less than a dollar of take-home — see how much less.
- Check your W-4. A large refund every April means you lent the government money interest-free all year. Adjusting your withholding moves that money into your paychecks.
- Count the state when comparing offers. Use the state comparison rather than the gross figure.
- Claim your dependents. The Child Tax Credit is worth $2,200 per child under 17 and reduces your tax directly, not just your taxable income.