①
N
Gross Pay
Base salary + commissions + bonuses + overtime + holiday / vacation / sick pay + taxable transportation & fringe benefits.
▸
Less: Pre-Tax Deductions
−
O
401(k) Elective Deferral
Traditional retirement contribution. Lowers income tax only — Social Security & Medicare still apply.
−
P
Health Insurance (§125)
Medical / dental / vision premiums under a Section 125 cafeteria plan. Lowers BOTH tax bases.
−
Q
FSA / Other (§125)
Health FSA, Dependent-Care FSA, HSA contributions. Lowers BOTH tax bases.
▸
Checkpoint: The Two Taxable Wage Bases
=
Federal & State Taxable Wages
W-2 Box 1
N − O − P − Q
Runs through federal & state withholding tables. Subtracts every pre-tax item.
=
FICA Wages
W-2 Box 3 / 5
N − P − Q
Runs through Social Security & Medicare. Does NOT subtract 401(k) — that's why Box 1 ≠ Box 3.
▸
Less: Taxes
−
R
Federal Income Tax income-tax base
Withholding from IRS Pub 15-T tables, driven by your W-4 (filing status, dependents, extra withholding).
−
S
State Income Tax income-tax base
Your state's withholding tables (most states conform to federal pre-tax treatment; a few don't).
−
T
Local Tax income-tax base
County, city, or school-district tax where applicable (e.g., MD county, NYC, Philadelphia).
−
U
Social Security 6.2% FICA base
Employee share of OASDI. Caps once you exceed the annual wage base ($176,100 for 2025).
−
V
Medicare 1.45% FICA base
Hospital Insurance — no wage cap. Additional 0.9% kicks in above $200k single / $250k MFJ.
▸
Less: Post-Tax Deductions
−
W
Insurance (post-tax)
After-tax coverage (life over $50k, voluntary disability where you want benefits tax-free, voluntary policies outside §125).
−
X
Other Deductions
Roth 401(k), garnishments, union dues, charitable giving, employee-stock-purchase plans — anything taken out after taxes.
=
AQ
Net Pay
N − (O + P + Q) − (R + S + T + U + V) − (W + X)
What actually lands in your bank account.
Gross − all pre-tax − all taxes − all post-tax = Net Pay.
💡 How to validate: pull your paystub and plug the line amounts into the formulas above. Your math should match what your employer calculated.
Legend — Column Letter Guide
Workbook column letter (N, O, P … X)
Gross / Net checkpoints
income-tax base — affected by pre-tax items
FICA base — Social Security & Medicare wages
Sources: IRC §61 · §125 · §401(k) · §3121 · §3401 · IRS Pub. 15 · IRS Pub. 15-T