You earn a salary of $55,000. Your paycheck deposits $1,730. What happened to the rest? Most workers accept this gap as a given without ever examining where those dollars go. But your paystub is a financial dashboard — and understanding it helps you make better decisions about your withholding, your benefits, and your take-home pay.
Gross Pay vs. Net Pay
- Gross Pay: What you earned before any deductions — your full salary or hourly wages for the pay period.
- Net Pay: What you actually receive (your "take-home pay"). Everything in between is accounted for by the deductions below.
Federal Tax Withholding
The largest deduction for most employees. Withheld by your employer and sent to the IRS on your behalf based on your W-4 form. The amount depends on your gross pay, filing status, and any additional withholding you requested. Federal brackets for 2025 range from 10% to 37%.
Getting a large refund every year? That means you're overwithholding — giving the government an interest-free loan. Consider updating your W-4 to put more money in your paycheck throughout the year instead.
State and Local Tax Withholding
Most states collect income tax withheld from your paycheck. Louisiana's top individual income tax rate is 3% as of 2025. Some cities and counties also impose local income taxes — if you see "city tax" or a municipality name, that's what it is.
FICA Taxes: Social Security and Medicare
FICA (Federal Insurance Contributions Act) funds Social Security and Medicare. These are mandatory and split between you and your employer:
| Tax | Your Rate | Employer Match | Notes |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | Applies to wages up to $176,100 (2025 wage base) |
| Medicare | 1.45% | 1.45% | No income cap; high earners pay additional 0.9% |
Pre-Tax Benefit Deductions
These deductions come out before taxes are applied, reducing your taxable income — one of the most effective legal ways to lower your tax bill.
| Deduction | What It Is | 2025 Limit |
|---|---|---|
| 401(k) / 403(b) | Employer-sponsored retirement savings | $23,500 (under 50) |
| Health Insurance | Your share of medical, dental, vision premiums | Employer sets the split |
| FSA (Healthcare) | Flexible Spending Account for qualified medical expenses | $3,300 |
| Dependent Care FSA | Child care or elder care expenses | $5,000 (household) |
| HSA | Health Savings Account — paired with HDHP; triple tax advantage | $4,300 individual / $8,550 family |
| Commuter Benefits | Transit or parking for work commute | $325/month |
Why pre-tax matters: In the 22% federal bracket, every $1,000 in pre-tax deductions saves you $220 in federal taxes (plus state). Maximizing pre-tax benefits is one of the most effective ways to reduce your tax bill without changing your lifestyle.
Post-Tax Deductions
These come out after taxes and do not reduce taxable income, but still affect your net pay:
- Roth 401(k) contributions
- Supplemental insurance premiums (voluntary disability, accident, hospital indemnity)
- Wage garnishments (court-ordered for child support, student loans, or judgments)
- Union dues
Year-to-Date (YTD) Figures
Most paystubs show running annual totals. Use these to track how much you've contributed to your 401(k) against the annual limit, when your Social Security deduction will stop (once you hit the wage base), and your total gross earnings — useful for loan applications and tax prep.
Save your final paystub of each year. It contains the annual totals you may need for taxes, loan applications, or disputes. Most employers provide them digitally — download and store it.
Sources
- Internal Revenue Service. (2025). Publication 15 (Circular E): Employer's Tax Guide. irs.gov
- Internal Revenue Service. (2025). FICA & SECA Tax Rates. irs.gov
- Internal Revenue Service. (2025). Publication 969: HSAs and Other Tax-Favored Health Plans. irs.gov
- Social Security Administration. (2025). 2025 Social Security Changes. ssa.gov
- Louisiana Department of Revenue. (2025). Individual Income Tax. revenue.louisiana.gov