A 401(k) contribution is money your employer moves from your paycheck into a retirement account before you get paid. With a traditional 401(k), that money comes out before federal income tax, so your 401k take home pay drops by noticeably less than the amount you contribute.
This guide explains what happens on your pay stub when you start or raise a 401(k) contribution, why Social Security and Medicare don't shrink, and how to estimate the real cost to your paycheck in 2026.
What a 401(k) contribution is
A 401(k) is an employer-sponsored retirement plan. You choose a contribution, usually as a percentage of each paycheck, and your employer's payroll system sends that amount to your account every payday. Government and nonprofit employers often offer similar plans called 403(b) and 457 plans, which work the same way on a pay stub.
Most plans offer two kinds of contributions:
- Traditional (pre-tax): the contribution is taken out before federal income tax, and you pay tax later when you withdraw the money in retirement.
- Roth (after-tax): the contribution is taxed now, and qualified withdrawals in retirement are tax-free.
This article focuses on traditional contributions, because they are the ones that change your tax withholding. For the Roth side, see our guide to Roth vs traditional 401(k) contributions.
Which taxes a traditional 401(k) reduces
A traditional 401(k) contribution lowers the wages used to figure federal income tax withholding. In most states it also lowers the wages used for state income tax. It does not lower Social Security or Medicare tax, which are figured on your full gross pay.
| Tax on your paycheck | Reduced by a traditional 401(k)? |
|---|---|
| Federal income tax | Yes |
| State income tax | Yes in most states (Pennsylvania is a notable exception) |
| Social Security (6.2%) | No |
| Medicare (1.45%) | No |
Pennsylvania taxes your 401(k) contributions for state income tax purposes, so the state tax line on a Pennsylvania paycheck doesn't drop when you contribute. If you want the full picture of which deductions skip which taxes, our guide to pre-tax vs after-tax deductions lays it out.
Worked example: 401(k) take home pay in Georgia
Take a single filer in Georgia earning $72,000 a year, paid biweekly (26 paychecks). Gross pay is $2,769.23 per paycheck. Here is how three contribution levels change the paycheck, using our paycheck calculator. These are 2026 estimates with no other deductions.
| Per paycheck | No 401(k) | 6% 401(k) | 10% 401(k) |
|---|---|---|---|
| 401(k) contribution | $0.00 | $166.15 | $276.92 |
| Federal income tax | $269.62 | $233.06 | $215.23 |
| Georgia income tax | $119.77 | $111.15 | $105.40 |
| Social Security | $171.69 | $171.69 | $171.69 |
| Medicare | $40.15 | $40.15 | $40.15 |
| Take-home pay | $2,168.00 | $2,047.03 | $1,959.84 |
At 6%, $166.15 goes into the 401(k), but take-home pay only falls by $120.97. The other $45.18 is income tax you no longer have withheld: $36.56 federal and $8.62 Georgia. At 10%, $276.92 goes in and take-home pay falls by $208.16.
Over a full year at 6%, this worker saves about $4,320 in the 401(k) while take-home pay drops by about $3,145. Social Security and Medicare stay exactly the same in every column.
Why the tax savings depend on your bracket
The income tax you save is roughly your contribution times your top tax rates. In the example above, the worker's last dollars of taxable income fall in the 22% federal bracket, and Georgia's flat rate is 5.19%, so each $100 contributed saves a bit more than $27 in income tax.
Someone in the 12% federal bracket in a state with no wage tax, such as Texas, saves only about $12 per $100 contributed. Someone in a higher bracket in a higher-tax state saves more. That's why the same 6% contribution costs different workers different amounts of take-home pay. Our guide to 2026 federal income tax brackets shows where each rate starts.
Other things that change the real cost
An employer match
Many employers add money when you contribute. The match doesn't appear in your take-home pay, but it adds to your account balance at no cost to your paycheck. Our article on how a 401(k) employer match works covers formulas and vesting.
The annual limit
For 2026, you can defer up to $24,500 of your pay into a 401(k), 403(b) or similar plan. If you're 50 or older, a catch-up of $8,000 is allowed, and workers aged 60 to 63 can use a higher catch-up of $11,250. If you hit the limit before December, your contributions stop and your later paychecks get bigger.
Taxes later
Traditional contributions aren't tax-free forever. You pay income tax on withdrawals in retirement, and withdrawals before retirement age can come with extra taxes. The paycheck savings now are a deferral, not a permanent exemption.
How to estimate your own number
- Find your gross pay per paycheck on your pay stub.
- Enter your salary or hourly rate, filing status, state and pay frequency in the PaycheckHubs paycheck calculator.
- Run it once with no 401(k), then again with the percentage you're considering.
- Compare the take-home pay lines. The gap is the true cost of your contribution per paycheck.
If you live in a state with local income tax, enter your local rate too. Our calculation methodology explains which deductions the calculator treats as pre-tax.
Frequently Asked Questions
Does a 401(k) contribution lower my Social Security tax?
No. Social Security and Medicare are figured on your gross wages before 401(k) contributions. Only income tax withholding goes down.
Will contributing to a 401(k) lower my take-home pay by the full amount?
Not with a traditional 401(k). Because income tax withholding drops, take-home pay falls by less than the contribution. In the Georgia example, a $166.15 contribution reduced take-home pay by $120.97.
Does a Roth 401(k) contribution affect take-home pay differently?
Yes. A Roth contribution comes out after taxes, so your take-home pay falls by the full contribution amount. You get the tax benefit later, when qualified withdrawals come out tax-free.
Can I change my 401(k) percentage any time?
Most plans let you change your contribution rate during the year, though some limit how often or when changes take effect. Check with your HR or plan administrator.
Sources
- IRS: 401(k) limit increases to $24,500 for 2026
- IRS Publication 15, Employer's Tax Guide
- IRS Topic 751, Social Security and Medicare Withholding Rates
- Tax Foundation: State Income Tax Rates for 2026
Run the numbers for your state
Written and checked against IRS, Social Security Administration and state tax agency publications for the 2026 tax year. General information, not tax, legal or financial advice. Read our editorial policy, calculation methodology and sources.