The full sequence
Step 1: Determine gross pay
For salaried employees, gross pay is your annual salary divided by the number of pay periods per year (26 for biweekly, 24 for semi-monthly, 52 for weekly). For hourly employees, it is hours worked multiplied by the hourly rate, plus any overtime (1.5× for hours over 40 per FLSA workweek). Gross pay also includes bonuses, commissions, and shift differentials earned in the period. See our semi-monthly vs. biweekly comparison for how pay frequency affects per-check amounts.
Step 2: Subtract pre-tax deductions
Pre-tax deductions come out before any taxes are calculated. The two categories have different tax impacts:
- Section 125 cafeteria plan deductions (health insurance premiums, FSA, dependent care FSA, HSA contributions via payroll): Reduce the base for BOTH income tax and FICA. These are the most tax-efficient deductions.
- Traditional 401(k) / 403(b) contributions: Reduce the base for income tax but NOT for FICA. Your Social Security and Medicare taxes are still calculated on the amount before the 401(k) deduction.
This distinction is the single most important nuance in payroll mechanics. See our pre-tax vs. post-tax deductions guide for the complete breakdown.
Step 3: Calculate FICA (Social Security + Medicare)
After Section 125 deductions are subtracted, your employer calculates FICA on the remaining amount:
- Social Security (OASDI): 6.2% of wages up to the annual wage base (check SSA for the current limit). Your employer pays a matching 6.2%.
- Medicare: 1.45% on all wages, with an additional 0.9% on wages above $200,000 (single). Only the employee pays the surtax.
Combined, your employee share is 7.65% on most wages. Once your year-to-date earnings hit the Social Security wage base, Social Security withholding stops for the rest of the year, giving you a larger per-check take-home. For more, see our FICA explained guide and FICA calculator.
Step 4: Calculate federal and state income tax
Your employer uses the IRS withholding tables from Publication 15-T to calculate federal income tax based on your W-4 elections (filing status, claimed dependents, additional withholding). The taxable amount for this step is gross pay minus Section 125 deductions minus 401(k) contributions. State income tax is calculated similarly using your state's withholding tables. Some cities and counties add local taxes.
Step 5: Subtract post-tax deductions
After taxes are calculated and withheld, post-tax deductions are subtracted. These do not reduce any taxes for the current period. Common post-tax deductions include: Roth 401(k) contributions, after-tax voluntary life insurance, union dues, wage garnishments (see our wage garnishment limits guide), and charitable contributions through payroll.
Step 6: Net pay = your take-home
What remains is your net pay — the amount deposited into your bank account (or printed on your paper check). The gap between gross and net is typically 25% to 40% for most workers, depending on tax bracket, benefits elections, and state. Understanding where every dollar goes is the purpose of reading your pay stub.
Pay frequency: how it affects the calculation
The payroll sequence is the same regardless of pay frequency, but the per-period amounts change. Your employer uses the appropriate frequency column in the IRS withholding tables:
| Frequency | Periods/year | $78K salary per check |
|---|---|---|
| Weekly | 52 | $1,500.00 |
| Biweekly | 26 | $3,000.00 |
| Semi-monthly | 24 | $3,250.00 |
| Monthly | 12 | $6,500.00 |
Roughly every 11 years, biweekly schedules produce a 27th pay period, which changes per-check amounts.
Payroll mechanics guide: related topics
This hub page connects to all payroll-related content on the site:
- Semi-monthly vs. biweekly pay — 24 vs. 26 paychecks compared
- 27 pay periods in a year — when and why it happens
- First paycheck timing — arrears payroll and processing lag
- Retro pay withholding — supplemental wage rules
- Final paycheck laws by state — state deadlines and penalties
- Pay stub explained — every line item decoded
- Pre-tax vs. post-tax deductions — which deductions reduce which taxes
- Wage garnishment limits — CCPA federal protections
For calculators: Salary paycheck calculator · Gross to net · FICA calculator · Biweekly pay calculator.
Questions
Payroll mechanics FAQ
In what order does my employer calculate paycheck deductions?
The standard order is: gross pay, then subtract Section 125 pre-tax deductions, then calculate FICA on the result, then subtract 401(k) for income tax purposes, then calculate federal and state income tax, then subtract post-tax deductions. The final result is your net pay.
Why does the order of deductions matter?
The order determines which deductions reduce which taxes. Section 125 deductions (health insurance, FSA) come out before FICA is calculated, so they reduce both income tax and FICA. Traditional 401(k) contributions come out before income tax but after FICA, so they only reduce income tax. Post-tax deductions do not reduce any current taxes.
Why is my net pay so much less than my gross pay?
The combination of federal income tax (10-37%), Social Security (6.2%), Medicare (1.45%), state income tax (0-13%+), and voluntary deductions (health insurance, retirement contributions) typically takes 25-40% of gross pay. The exact percentage depends on your income level, filing status, state, and benefit elections.
How does my employer know how much tax to withhold?
Your employer uses the information you provided on Form W-4 (filing status, dependents, additional withholding) combined with the IRS withholding tables in Publication 15-T. The tables convert your per-period taxable wages into a specific withholding amount. State withholding uses similar tables provided by your state tax agency.
Can I change my deductions mid-year?
You can update your W-4 at any time to change federal withholding. Benefits elections (health insurance, FSA, HSA) can typically only be changed during open enrollment or after a qualifying life event (marriage, birth of child, loss of other coverage). 401(k) contribution changes can usually be made at any time, effective with the next pay period.
- Sources: IRS Publication 15 · IRS Publication 15-T · IRC Section 125 · U.S. DOL FLSA.
- 🔄 Last updated July 31, 2026 · Tax year 2026
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