Quick facts
- Net pay = gross pay minus withholdings (such as federal income tax and the employee share of Social Security and Medicare) and other deductions.
- Employee Social Security tax: 6.2% of wages up to a $184,500 wage base; employee Medicare tax: 1.45% of all wages (IRS Publication 15, 2026).
- Federal income tax withholding is based on the employee's Form W-4 and the IRS withholding tables, not a flat rate.
- Pay frequency rules and many deduction rules are set by state law and differ from state to state.
What it means in practice
Net pay is often called "take-home pay." It starts with gross income for the pay period, meaning the employee's total pay before anything is taken out, and subtracts the amounts the employer is required or authorized to withhold. What is left is the amount paid to the employee. Running this calculation correctly each pay period is a core part of payroll.
According to IRS Publication 15 (Employer's Tax Guide), employers withhold federal income tax according to the employee's Form W-4 and the withholding tables in Publication 15-T. They also withhold the employee share of FICA taxes. For 2026, Publication 15 lists the employee Social Security rate as 6.2% on wages up to a $184,500 wage base and the employee Medicare rate as 1.45% with no wage base limit. An Additional Medicare Tax of 0.9% is withheld on wages paid to an employee above $200,000 in a calendar year, and there is no employer share of that additional tax. The employer pays its own matching share of Social Security and Medicare tax on top of the employee's wages; that employer share does not reduce the employee's net pay.
Other deductions can reduce net pay further, such as the employee's share of benefit premiums or retirement contributions, or court-ordered garnishments. The federal wage rules limit what an employer may take out of pay. Under 29 CFR 531.35, wages must be paid "free and clear," and an arrangement in which an employee returns part of their pay to the employer, or to someone else for the employer's benefit, violates the wage requirements. One example in the regulation is requiring employees to buy their own tools of the trade when that cuts into the minimum wage or overtime owed for the workweek. Because the Fair Labor Standards Act sets that floor, a deduction that is legal under state law can still be a problem if it pulls an employee's pay below the federal minimum or cuts into overtime pay.
States differ here. The Department of Labor's state payday page shows that states set their own rules on how often employees must be paid, and it advises checking the relevant state labor office for official information. Many states also have their own rules on which deductions are allowed and what written authorization is needed. Check your state labor department before adding any deduction that is not required by law.
Example. An employee has gross pay of $2,000 for a pay period. The employer withholds federal income tax per the employee's Form W-4, plus Social Security tax of 6.2% ($124.00) and Medicare tax of 1.45% ($29.00), and a $100 benefit premium the employee authorized. Net pay is $2,000 minus those amounts, with the income tax withholding depending on the W-4 and the IRS tables. The figures are illustrative only.
Why it matters and common mistakes
Treating net pay as the amount the employer owes in wages. Wages are generally measured before deductions, so the employer's tax and wage obligations are calculated on gross pay, not on the take-home amount.
Making deductions that return part of an employee's pay to the employer. Under 29 CFR 531.35 this violates the wage requirements when it reduces the minimum wage or overtime owed.
Withholding federal income tax without a Form W-4 on file. Publication 15 states that employers should have a Form W-4 on file for each employee.
Assuming federal rules are the only ones. State law sets pay frequency and often limits or conditions deductions, so confirm with your state labor department.
How Remindax helps
Remindax helps you track the dates and deadlines tied to payroll reviews and pay-period checks and sends reminders before they're due. Remindax does not provide legal, tax, or HR advisory services, and this page is for general informational purposes only - consult a qualified attorney, accountant, or HR professional for guidance specific to your situation.
Related terms
See all terms in Payroll & Compensation Basics.
Sources & References
- IRS - Publication 15 (2026), Employer's Tax Guide - Form W-4 based income tax withholding; employee Social Security 6.2% (2026 wage base $184,500) and Medicare 1.45%; Additional Medicare Tax 0.9% over $200,000
- eCFR - 29 CFR 531.35, "Free and clear" payment; kickbacks - wages must be paid free and clear; returning pay to the employer violates wage requirements; tools-of-the-trade example
- DOL - State Payday Requirements - pay frequency rules vary by state; consult the state labor office
Last reviewed: October 2026. Figures are reviewed annually - see Sources & References for current figures.