Reference
Paycheck and Tax Glossary
By Barron Hansen, Founder ยท Updated April 20, 2026
Plain-language definitions for the terms that show up on pay stubs, tax forms, and IRS publications. Each entry uses everyday language and, where helpful, links to the relevant calculator or FAQ.
Federal income tax
Core concepts that drive how much of your salary the IRS expects to see each year.
- Adjusted Gross Income (AGI)
- Total income minus specific above-the-line adjustments such as deductible HSA contributions, traditional IRA contributions, student-loan interest, and self-employment tax deductions. AGI is the figure most federal calculations start from, including eligibility for many credits.
- Modified Adjusted Gross Income (MAGI)
- AGI with several specific add-backs, the most common being student-loan interest, foreign earned income exclusion, and certain IRA deductions. Different tax provisions use slightly different MAGI formulas, so the figure that matters depends on the provision (Roth IRA phaseout, ACA subsidies, IRMAA, and so on).
- Taxable Income
- What's left after subtracting either the standard deduction or itemized deductions from AGI. Federal tax brackets are applied to this number, not to your gross salary or AGI.
- Marginal Tax Rate
- The rate applied to your next dollar earned. If you're sitting in the 22% federal bracket, the next $100 of taxable income costs $22 in federal income tax before state or payroll taxes. This is the right rate to use when evaluating a raise, overtime, or a pre-tax contribution decision.
- Effective Tax Rate
- Total tax divided by gross income, which gives the average rate across every dollar earned. Useful for comparing two locations or two years, less useful for deciding how a single financial move will be taxed.
- Standard Deduction
- A flat amount subtracted from AGI before federal brackets are applied, used by most filers who don't itemize. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married filing jointly.
- Filing Status
- The category that determines which bracket schedule, standard deduction, and credit phaseouts apply. The five statuses are single, married filing jointly, married filing separately, head of household, and qualifying surviving spouse. Compare paycheck taxes between two locations.
Payroll taxes
What gets withheld from every paycheck for federal social-insurance programs, separate from income tax.
- FICA
- The Federal Insurance Contributions Act, which funds Social Security and Medicare through mandatory employee and employer payroll withholding. On a paycheck, FICA shows up as two separate line items at a combined 7.65% employee rate, before any state or local tax. Paycheck and withholding FAQs.
- A 6.2% employee withholding (matched by the employer) on wages up to the annual wage base. Earnings above the wage base are not subject to this tax, which is why some higher earners see a take-home jump late in the year once the cap is reached.
- The annual wage ceiling above which Social Security tax is no longer withheld. For 2026, the wage base is $184,500. The Social Security Administration updates this figure each year based on national average wage growth.
- Medicare Tax
- A flat 1.45% withheld from every dollar of wages, with no annual cap. The employer matches this amount, bringing the combined rate to 2.9% on all wages.
- Additional Medicare Tax
- A 0.9% surtax on wages above $200,000 for single filers ($250,000 for married filing jointly). Employers begin withholding this on wages above $200,000 regardless of filing status, and any over- or under-withholding gets reconciled on the federal return.
- Federal Income Tax Withholding
- Money your employer holds back from each paycheck and remits to the IRS based on your Form W-4 elections. This is an estimate of your annual federal liability spread across pay periods, not a fixed tax. Paycheck and withholding FAQs.
State and local taxes
The layer of withholding that varies most by where you live and work.
- State Income Tax
- A tax levied by 41 US states on wage income, ranging from flat single rates to multi-bracket progressive schedules. Nine states have no broad-based wage income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. US paycheck take-home calculator.
- Local / City Payroll Tax
- An income or wage tax levied by a city, county, or local jurisdiction on top of state and federal withholding. Examples include New York City's resident income tax, Philadelphia's wage tax, and Ohio's municipal income tax network.
- State Disability Insurance (SDI)
- Short-term wage replacement program funded by employee payroll withholding in a handful of states: California, Hawaii, New Jersey, New York, Rhode Island, and Washington (plus Puerto Rico's SINOT). Rates and wage caps vary by state and are reset annually.
- State Unemployment Insurance (SUI / SUTA)
- Payroll tax that funds state unemployment benefits. In most states, only employers pay SUTA; a few states, including Alaska, New Jersey, and Pennsylvania, collect a small employee contribution as well.
- State Tax Reciprocity
- Agreement between two states that lets a resident of one state work in the other and only pay income tax to their home state. Reciprocity exists between many Midwest and Mid-Atlantic neighbors, but each agreement has specific filing and certificate requirements.
Retirement and pre-tax savings
Accounts and limits that reduce taxable income today or set up tax-free income later.
- 401(k)
- Employer-sponsored retirement account that lets employees defer wages on a pre-tax (traditional) or after-tax (Roth) basis. Traditional contributions reduce your federal taxable income for the year, and most states honor the same exclusion. Model 401(k) deferrals in the US paycheck calculator.
- Traditional vs. Roth 401(k)
- Two flavors of the same employer-sponsored plan. Traditional 401(k) money goes in pre-tax and gets taxed at withdrawal, while Roth 401(k) money goes in after-tax and grows tax-free for qualified withdrawals.
- 401(k) Contribution Limit
- The IRS-set ceiling on employee elective deferrals. For 2026, the base limit is $24,500, with a catch-up of an additional $8,000 for employees age 50 and older bringing the total to $32,500.
- Catch-Up Contribution
- Extra retirement contribution allowed for employees who reach age 50 by year-end. Applies to 401(k), 403(b), and most governmental 457(b) plans, and uses a separate IRS limit on top of the base employee deferral cap.
- Employer Match
- Contributions your employer adds to your 401(k) based on what you defer, typically expressed as a percentage of pay up to a percentage of your contribution. A common formula is 100% of the first 3% you defer plus 50% of the next 2%, which equals a 4% employer contribution if you defer at least 5%.
- Health Savings Account (HSA)
- Tax-advantaged account paired with a qualifying high-deductible health plan. Contributions are pre-tax and reduce both federal and most state taxable income; withdrawals for qualified medical expenses are also tax-free. For 2026, the contribution limit is $4,400 for self-only coverage and $8,750 for family coverage.
- Flexible Spending Account (FSA)
- Employer-sponsored pre-tax account for qualified medical (FSA) or dependent care (DCFSA) expenses. Unlike an HSA, an FSA isn't tied to a specific health plan, and unspent balances usually expire at year-end (some plans allow a small carryover or grace period).
Pay structure
How a paycheck is built and the line items most likely to confuse the first time you read a pay stub.
- Gross Pay
- Total compensation earned in a pay period before any taxes or deductions. Hourly workers calculate gross pay as hours worked multiplied by the rate; salaried workers divide annual salary by the number of pay periods.
- Net Pay (Take-Home Pay)
- What lands in your bank account after federal income tax, state income tax, FICA, local taxes, and any pre- or post-tax deductions are subtracted from gross pay. Often called take-home pay. See your 2026 take-home pay.
- Pre-Tax Deduction
- Amount withheld from gross pay before federal income tax is calculated, which lowers your federal taxable income. Common examples include traditional 401(k) contributions, HSA contributions, and most employer-sponsored health insurance premiums.
- Post-Tax Deduction
- Withholding subtracted after federal income tax is computed, so it doesn't reduce taxable income. Roth 401(k) contributions, garnishments, and certain disability premiums fall into this bucket.
- Supplemental Wages
- Wages paid outside of regular base pay: bonuses, commissions, severance, accumulated sick pay, and similar one-time amounts. The IRS allows employers to withhold federal tax on supplemental wages at a flat 22% (up to $1 million, then 37% above), which is why bonus paychecks often look heavily taxed.
- Bonus Tax Rate (Federal)
- The flat 22% federal withholding rate applied to most supplemental wage payments under $1 million per year. This is a withholding convention, not the actual tax owed; your real liability is reconciled when you file the federal return.
- Year-to-Date (YTD)
- Cumulative total of earnings and withholdings from January 1 through the current pay date. YTD figures are useful for spotting Social Security cap effects, year-end bonus impact, and projecting your full-year tax position.
- Pay Period
- The recurring interval between paychecks. Common pay periods are weekly (52 per year), biweekly (26 per year), semimonthly (24 per year), and monthly (12 per year), each affecting how withholding tables are applied.
Forms and other concepts
The paperwork side: forms you fill out, forms you receive, and a few specialized terms worth knowing.
- W-4 Form
- The IRS form you give your employer to set up federal income tax withholding. The current version, redesigned in 2020, replaced the old allowance system with dollar amounts for dependents, additional income, and extra withholding.
- W-2 Form
- Year-end statement employers send each employee (and the IRS) reporting wages paid, federal income tax withheld, FICA withholding, retirement contributions, and other payroll details for the calendar year. Most filers use the W-2 numbers directly when filing a federal return.
- 1099 Form
- A family of IRS forms used to report non-wage income. Independent contractors typically receive a 1099-NEC, brokerage income arrives on a 1099-B or 1099-DIV, and miscellaneous income shows up on a 1099-MISC.
- Itemized Deductions
- Specific deductible expenses (state and local taxes up to the SALT cap, mortgage interest, charitable contributions, certain medical costs above 7.5% of AGI) claimed in place of the standard deduction. Filers itemize only when the total exceeds their standard deduction.
- Tax Bracket
- An income range taxed at a specific marginal rate under a progressive tax schedule. Federal income tax for 2026 uses seven brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%), with the cutoffs depending on filing status.
- Imputed Income
- Non-cash compensation that's still taxable: group-term life insurance over $50,000, personal use of a company car, domestic partner health coverage, and similar fringe benefits. Imputed income appears on a W-2 and increases taxable wages, even though no money changed hands.
- Wage Garnishment
- Court-ordered deduction from a paycheck to satisfy a debt such as unpaid child support, defaulted student loans, IRS back taxes, or a creditor judgment. Federal Consumer Credit Protection Act rules cap most garnishments at 25% of disposable earnings, with stricter rules for child support and tax debt.
Reviewed
How This Page Is Reviewed
Glossary entries are reviewed against IRS, SSA, and state tax authority publications. Figures with annual updates (contribution limits, wage bases, bracket thresholds) are refreshed alongside the calculator's tax-year update cycle.
Reviewed by
PaycheckCalc Research Desk
Last reviewed
2026-04-20