Where Your Paycheck Goes
For most American workers, 25–35% of gross pay goes to taxes and mandatory deductions. Federal income tax is typically the largest bite, followed by FICA (Social Security + Medicare), and state income tax if applicable. The exact split varies widely based on income level, filing status, and state of residence.
The Power of Pre-Tax Deductions
Increasing pre-tax deductions (401k, HSA, FSA, health insurance) reduces taxable income and can meaningfully increase take-home pay if the tax savings are significant. At a 22% marginal rate, every $1,000 in 401k contributions only costs $780 in take-home pay — the other $220 would have gone to federal taxes.
Marginal vs. Effective Tax Rate
The US federal income tax is progressive, meaning different portions of your income are taxed at different rates. Your marginal rate is the highest rate you pay, but your effective rate — total tax divided by gross income — is always lower. A single filer earning $75,000 in 2025 has a 22% marginal rate but an effective federal rate of only about 12–14%.
The W-2 vs 1099 Tradeoff
Independent contractors (1099) pay self-employment tax at 15.3% on their net earnings — effectively covering both the employer and employee share of FICA. At $75,000, this adds roughly $5,000–$7,000 more in taxes compared to a W-2 employee. Contractors typically need to charge 20–30% higher rates to achieve equivalent take-home pay, though business expense deductions can help offset some of this.
No Income Tax States
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. For a $75,000 earner moving from California or New York to Texas, the annual state tax savings can exceed $4,000–$5,000.