Understanding Your Paycheck
If you've ever looked at your paycheck and wondered where 30-40% of your salary went, this calculator breaks it down. The gap between your gross salary and your take-home pay is filled by federal income tax, Social Security, Medicare, state income tax, and any pre-tax deductions like 401(k) contributions and health insurance.
Marginal vs effective tax rate
Your marginal tax rate is the rate on your last dollar of income — the highest bracket you fall into. Your effective tax rate is what you actually pay overall. Someone in the "22% bracket" doesn't pay 22% on all their income. They pay 10% on the first $12,400, 12% on the next $38,000, and only 22% on taxable income above $50,400. This is why the effective rate is always lower than the marginal rate.
How 401(k) contributions reduce your taxes
Traditional 401(k) contributions are pre-tax — they reduce your taxable income. If you earn $85,000 and contribute 6% ($5,100) to your 401(k), you're only taxed on $79,900. At a 22% marginal rate, that $5,100 contribution saves you roughly $1,122 in federal taxes this year while building your retirement fund.