Question 1

What is the difference between gross pay and net pay?

Accepted Answer

Gross pay is your total salary before any deductions. Net pay (take-home pay) is what you actually receive after federal taxes, state taxes, FICA (Social Security + Medicare), and pre-tax deductions like 401(k) and health insurance. For a $75,000 salary, net pay is typically $55,000-$62,000 depending on your state and deductions.

Question 2

What is FICA and why is it deducted?

Accepted Answer

FICA stands for the Federal Insurance Contributions Act. It includes Social Security tax (6.2% up to $168,600 in 2025) and Medicare tax (1.45% on all earnings, plus an additional 0.9% on earnings above $200,000). Your employer pays a matching amount. These fund retirement benefits and healthcare for seniors.

Question 3

Which states have no income tax?

Accepted Answer

Nine states have no state income tax: Alaska, Florida, Nevada, New Hampshire (dividends/interest only), South Dakota, Tennessee, Texas, Washington, and Wyoming. Living in these states means more take-home pay, but they may have higher sales or property taxes to compensate.

Question 4

How does a 401(k) reduce my taxes?

Accepted Answer

Traditional 401(k) contributions are pre-tax, meaning they reduce your taxable income. If you earn $75,000 and contribute 6% ($4,500), you are only taxed on $70,500. At a 22% marginal tax rate, that saves you about $990/year in taxes while building retirement savings. The 2025 contribution limit is $23,500 ($31,000 if age 50+).

Question 5

What is the standard deduction for 2025?

Accepted Answer

For 2025, the standard deduction is $15,000 for single filers and $30,000 for married filing jointly. This amount is subtracted from your adjusted gross income before calculating federal income tax. Most taxpayers use the standard deduction rather than itemizing.

Question 6

Why is my effective tax rate lower than my marginal rate?

Accepted Answer

The US uses a progressive tax system where income is taxed in brackets. If you are in the 22% bracket, only income above ~$48,475 is taxed at 22% — income below that threshold is taxed at 10% and 12%. This means your effective (average) rate is always lower than your marginal (highest bracket) rate.

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