How a pretax 401(k) changes take-home and taxable income

A traditional 401(k) deferral lowers the wages that flow into federal ordinary taxable income. It usually does not lower the wages that Social Security and Medicare see. That split is why take-home pay does not fall one-for-one with the contribution, and why FICA lines on a paycheck can look stubborn when the federal income-tax line moves.

Case study: $72,000 salary, single, biweekly, no state tax, tax year 2026. Compare 0% deferral with 10% deferral. Reproduce it on the paycheck calculator by changing only the 401(k) percentage.

With 0% deferral

Taxable income for federal ordinary tax is 72,000 − 16,100 = $55,900. Federal tax is $7,010. Social Security is $4,464. Medicare is $1,044. Net pay is $59,482 a year, about $2,287.77 every other week.

With 10% deferral

Ten percent of $72,000 is $7,200 deferred into the plan for the year ($276.92 per biweekly check). Federal taxable income becomes 72,000 − 7,200 − 16,100 = $48,700. That amount still reaches the 12% bracket but no longer touches the 22% bracket:

• 10% × $12,400 = $1,240
• 12% × $36,300 = $4,356
• Federal income tax = $5,596

Federal tax fell by $1,414 (from $7,010 to $5,596). Social Security and Medicare did not move: still $4,464 and $1,044 on $72,000 of FICA wages under this model. Net pay becomes:

72,000 − 7,200 − 5,596 − 4,464 − 1,044 = $53,696

About $2,065.23 per biweekly check. You directed $7,200 into retirement accounts and your take-home fell by $59,482 − $53,696 = $5,786, not by the full $7,200. The difference is the federal tax you no longer owe this year under this sketch.

What this does not cover

Roth 401(k) contributions are after-tax for federal ordinary income: they do not shrink this year’s taxable wages the way traditional deferrals do. Employer matches are not employee take-home. Early-withdrawal penalties, required distributions, and investment returns are outside a paycheck model. State tax treatment of deferrals varies; this example uses a 0% state rate.

Where the $1,414 of tax savings sits

Without the deferral, the last $5,500 of taxable income was in the 22% bracket and cost $1,210. After a $7,200 deferral, taxable income falls by $7,200, which removes that entire 22% slice and also pulls $1,700 out of the 12% band ($1,700 × 0.12 = $204). The federal tax drop is 1,210 + 204 = $1,414. The first dollars you defer out of a 22% band save 22 cents on the dollar in ordinary tax; once you have dropped fully into the 12% band, further traditional deferrals save 12 cents on the dollar in this sketch (before credits and other moving parts).

That is also why “I am in the 22% bracket, so my 401(k) saves 22%” is only true for the dollars that actually leave the 22% band. After those dollars are gone, the marginal benefit steps down with the brackets.

Cash-flow view on one biweekly check

Gross per check is about $2,769.23. At 10% deferral, $276.92 goes to the plan before federal ordinary tax is computed. Federal withholding in the planning model falls from about $269.62 to about $215.23. FICA stays about $211.85. Net falls from about $2,287.77 to about $2,065.23. The check is lighter by about $222.54, while $276.92 reached the retirement account — the gap is the federal tax not withheld under the annual model.

Assumptions and limitations

• Traditional pretax 401(k) only, as a flat percent of annual gross.
• FICA wages equal gross wages in this model. Some cafeteria-plan items can differ in real payroll.
• No other pretax benefits (HSA, FSA) in the 10% case.
• No saver’s credit or other credits.
• Plan limits, catch-up contributions, and highly-compensated-employee testing are ignored.

Sources and methodology

Federal tax and FICA follow calcPaycheck and IRS Rev. Proc. 2025-32 data in TAX_DATA_2026. For elective deferral definitions and annual contribution limits, see IRS 401(k) plan guidance and Notice updates for the plan year. Educational estimate, not plan or tax advice.