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Um, the 401K contribution is not a percentage of gross pay, but of net pay.

I've got to disagree with this comment. Most companies will calculate your 401k contribution either as a fixed dollar amount or as a percentage of your gross pay. Then, as Phil said, your income tax withholdings are calculated based on your taxable gross pay, which is the gross pay less your 401k contribution (and a couple of other potential items like health insurance). If you start or increase your 401k contribution, your income tax withholdings will decrease automatically to take into account the non-taxable nature of 401k contributions.

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