Every time you look at a job offer, a pay stub, or a tax form, two numbers keep showing up: gross pay and net pay. They are never the same — and the gap between them is where most paycheck confusion lives.
The short version: gross pay is your total earnings before anything is taken out. Net pay is the money that actually lands in your bank account after taxes and deductions. Everything in between — federal income tax, Social Security, Medicare, state tax, health insurance, retirement contributions — is what creates the gap.
This guide explains both terms in plain English, walks through every item that sits between them, shows the exact math on a real paycheck, and gives you the tools to calculate your own gross-to-net conversion in seconds.
Key Takeaways
- Gross pay = your total compensation before any deductions. It’s the number on your offer letter and the top line of your pay stub.
- Net pay = what’s left after taxes and deductions. It’s the number deposited in your bank account.
- The difference is made up of federal income tax, FICA (Social Security + Medicare), state/local taxes, and voluntary deductions like 401(k) contributions and health insurance.
- Most workers take home 70%–85% of their gross pay, depending on income, state, and benefit elections.
- Gross pay is used for loan applications, tax brackets, and benefit eligibility. Net pay is what you use to budget and pay bills.
- Want your exact number? Our 50-State Paycheck Calculator converts gross to net in seconds for any salary and any state.
What Is Gross Pay?
Gross pay is your total earnings before any taxes or deductions are subtracted. It’s the “before” number — the full amount your employer owes you for the work you did during a pay period.
For a salaried employee, gross pay is your annual salary divided by the number of pay periods in the year:
For example, a $60,000 annual salary paid biweekly (26 pay periods) produces a gross pay of $2,307.69 per paycheck.
For an hourly employee, gross pay is hours worked multiplied by the hourly rate — plus any overtime, which is typically paid at time and a half (1.5× the regular rate) for hours beyond 40 per week:
What counts as gross pay?
Gross pay includes all compensation your employer pays you. That means:
- Base salary or hourly wages — your core compensation.
- Overtime pay — hours beyond 40/week at premium rates. Calculate yours with our Overtime Calculator.
- Bonuses and commissions — performance pay, sign-on bonuses, annual incentives.
- Tips — if reported through payroll.
- Holiday, vacation, and PTO pay — paid time off counts as gross pay.
- Shift differentials — extra pay for nights, weekends, or hazardous duty.
- Back pay and retroactive adjustments — owed wages paid later.
Where you’ll see gross pay
- Your pay stub — listed at the top as “Gross Pay” or “Gross Earnings,” both current-period and year-to-date (YTD). Learn to read every line in our pay stub guide.
- Your W-2 — Box 1 shows your total taxable wages for the year (which may differ slightly from total gross if you had pre-tax deductions).
- Job offers and salary negotiations — the number quoted is almost always gross. A $75,000 offer means $75,000 gross, not $75,000 in your bank account.
- Loan and mortgage applications — lenders use gross income to determine your debt-to-income ratio.
What Is Net Pay?
Net pay is what’s left after all taxes and deductions have been subtracted from your gross pay. It’s the “after” number — the amount that actually gets deposited into your bank account.
Net pay is also called:
- Take-home pay — the most common informal term.
- Net income (in a payroll context).
- Disposable income (loosely — economists define this slightly differently).
Where you’ll see net pay
- Your pay stub — listed at the bottom as “Net Pay” or “Net Amount.”
- Your bank statement — the direct deposit amount should match your pay stub’s net pay.
- Your personal budget — net pay is the number you actually have to spend on rent, groceries, savings, and everything else.
Net pay is not on your W-2. Your W-2 reports gross taxable wages and the total taxes withheld — your tax return reconciles those, not your net pay.
What Sits Between Gross and Net? (Everything That Gets Deducted)
The gap between gross pay and net pay is entirely made up of two categories: mandatory taxes and deductions (some required, some voluntary). Here’s every major item, in the order they typically appear on a pay stub.
Mandatory Taxes
These are withheld by law. You have no choice about whether they come out — only, in some cases, how much.
1. Federal Income Tax (FIT)
Your employer withholds estimated federal income tax from every paycheck based on the Form W-4 you filed. The amount depends on your filing status, dependents, income level, and any extra withholding you requested.
The U.S. uses progressive tax brackets — for 2026, rates range from 10% to 37%, and each rate applies only to income within that bracket, not your entire salary. The IRS 2026 bracket adjustments detail the current thresholds.
Key point: Federal withholding is an estimate. If your employer withholds too much, you get a refund at tax time. Too little, and you owe. The IRS Tax Withholding Estimator helps you dial it in.
2. Social Security Tax (OASDI)
A flat 6.2% of your gross wages, up to the 2026 wage base of $184,500. Your employer pays a matching 6.2% on top. Once your year-to-date earnings pass $184,500, Social Security tax stops for the rest of the year. The SSA contribution and benefit base confirms the current limit.
3. Medicare Tax
A flat 1.45% of all gross wages — no cap. An Additional Medicare Tax of 0.9% kicks in on wages above $200,000 (single) or $250,000 (married filing jointly). See IRS Topic No. 751.
4. FICA (Combined)
Social Security + Medicare are collectively called FICA (Federal Insurance Contributions Act). The combined employee rate is:
On a $60,000 salary, FICA alone costs $4,590/year — or about $176.54 per biweekly paycheck. This is one of the largest deductions for most workers, and it applies to every dollar of gross pay (up to the Social Security wage base).
5. State Income Tax
Most states withhold their own income tax. Rates and structures vary enormously:
- Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
- Others range from flat rates around 3% to progressive brackets exceeding 10%.
This is the single biggest variable between two people with identical gross salaries. To see how your state’s brackets affect your net pay, select your state in our State Paycheck Calculators.
6. Local / City Taxes
Some cities, counties, and school districts levy additional income or wage taxes (typically 0.5%–3%). Common in New York City, Philadelphia, and many Ohio municipalities.
Voluntary & Authorized Deductions
These reduce your net pay further, but you elected them (or they were imposed by a court order).
Pre-Tax Deductions (Reduce Taxable Income)
| Deduction | 2026 Annual Limit |
|---|---|
| 401(k) / 403(b) / 457 | $24,500 ($32,500 if 50+; $35,750 if 60–63). IRS source |
| Health Insurance Premiums | Varies by plan |
| HSA (Health Savings Account) | $4,400 self / $8,750 family |
| FSA (Flexible Spending Account) | $3,400 health FSA |
| Commuter / Transit Benefits | $325/month each |
Pre-tax deductions come out before federal and state income tax is calculated, which means they lower your taxable income. Contributing $500/month to a 401(k) doesn’t reduce your net pay by the full $500 — it also reduces the tax withheld, so the actual hit to your take-home pay is smaller than the contribution.
Post-Tax Deductions (Do Not Reduce Taxable Income)
| Deduction | Notes |
|---|---|
| Roth 401(k) / Roth 403(b) | After-tax contributions; tax-free in retirement |
| Supplemental Life Insurance | Premiums for coverage beyond employer-provided |
| Disability Insurance | Voluntary short-term or long-term disability |
| Union Dues | Labor union membership fees |
| Wage Garnishments | Court-ordered: child support, student loans, tax levies. Capped by federal law — see the DOL garnishment overview |
| Charitable Payroll Deductions | United Way campaigns, etc. |
Gross vs. Net: Side-by-Side Comparison
| Gross Pay | Net Pay | |
|---|---|---|
| Also called | Gross earnings, gross income, total compensation | Take-home pay, net earnings, disposable pay |
| Where it appears | Top of pay stub, W-2 Box 1, offer letter | Bottom of pay stub, bank deposit |
| Includes | All earnings before deductions | What remains after all deductions |
| Used for | Tax brackets, loan qualifications, salary comparisons, benefit eligibility | Budgeting, rent, bills, actual spending |
| Who controls it | Your employer (based on your role, hours, and agreement) | A combination of tax law, your state, and your benefit elections |
| Always larger? | Yes — gross is always ≥ net | Always smaller than gross |
A Real Example: $60,000 Salary, Gross to Net
Let’s walk through a single biweekly paycheck for a single filer earning $60,000/year in a state with ~4% income tax, contributing 5% pre-tax to a 401(k) with a standard health insurance deduction.
| Line Item | Amount |
|---|---|
| Gross Pay ($60,000 ÷ 26) | $2,307.69 |
| Federal Income Tax (est.) | −$155.00 |
| Social Security (6.2%) | −$143.08 |
| Medicare (1.45%) | −$33.46 |
| State Income Tax (~4%) | −$85.00 |
| 401(k) Pre-Tax (5%) | −$115.38 |
| Health Insurance | −$95.00 |
| Net Pay (Take-Home) | ≈ $1,680.77 |
Gross pay: $2,307.69. Net pay: $1,680.77. That’s about 72.8% of gross hitting the bank account — right in the typical 70–85% range.
Notice that the 401(k) contribution ($115.38) and health insurance ($95.00) are pre-tax, so they reduce the wages that federal and state taxes are calculated on. Without those pre-tax deductions, the tax withholding would be higher and the net pay would actually be lower despite not making retirement/health contributions.
See your own numbers: Plug your exact salary, state, and deductions into our State Paycheck Calculators for a precise gross-to-net breakdown.
Gross Pay vs. Net Pay for Self-Employed Workers
If you’re a freelancer, independent contractor, or sole proprietor, gross and net work a bit differently:
- Gross income = your total revenue (all invoices paid) before any expenses.
- Net income = revenue minus business expenses (software, supplies, home office, mileage, etc.).
- Self-employment tax replaces FICA — but you pay both halves (employee + employer), for a combined 15.3% on 92.35% of net self-employment earnings. You can deduct half of this on your 1040.
There’s no employer to withhold taxes for you, so you’re responsible for quarterly estimated payments. Our Self-Employment Tax Calculator and 1099 Paycheck Calculator handle the full math.
Related: If you receive a 1099 instead of a W-2, gross pay is your total client payments before expenses and taxes. Your “net pay” is what’s left after SE tax, income tax, and business costs — and it’s typically a much larger gap than W-2 workers experience.
How to Calculate Net Pay from Gross Pay
You can estimate your net pay in five steps:
Step 1: Start with gross pay. Annual salary ÷ pay periods, or hours × rate.
Step 2: Subtract pre-tax deductions. 401(k), health insurance, HSA, FSA. This gives you your taxable wages.
Step 3: Calculate and subtract federal income tax. Apply the 2026 progressive brackets to your taxable wages, adjusted for your W-4 filing status. The 2026 standard deduction is $16,100 (single) or $32,200 (married filing jointly).
Step 4: Calculate and subtract FICA. Gross pay × 6.2% (Social Security) + Gross pay × 1.45% (Medicare). Note: FICA is calculated on gross pay, not on the reduced taxable wages from Step 2 (except for HSA contributions, which are FICA-exempt).
Step 5: Subtract state/local taxes and post-tax deductions. Apply your state’s brackets and remove any Roth contributions, garnishments, or other post-tax items.
The result is your net pay.
Or, skip all five steps and let our State Paycheck Calculators do it automatically — they handle federal brackets, all 50 state tax systems, FICA, and pre-tax deductions in real time.
Why the Difference Matters
Understanding gross vs. net isn’t just vocabulary — it affects real financial decisions:
Budgeting
Your rent, groceries, and bills come out of net pay, not gross. If you budget based on your salary (gross), you’ll overspend. Always build your budget around take-home pay.
Salary Negotiations
Job offers quote gross pay. A $10,000 raise doesn’t add $10,000 to your bank account — after marginal taxes, you might keep $6,500–$7,500 of it. Use our Raise Calculator to see the real net impact of a raise before you negotiate.
Comparing Job Offers Across States
A $90,000 offer in Texas (no state income tax) and a $90,000 offer in California (up to 13.3% state tax) produce very different net pay. Gross pay is the same — net pay is not. Compare them side by side with our State Paycheck Calculators.
Loan Applications
Lenders typically use gross income to calculate your debt-to-income ratio. But your ability to actually make payments depends on net income. Know both numbers before you apply.
Retirement Planning
Your 401(k) contribution is a percentage of gross pay. But because it’s pre-tax, a 10% contribution doesn’t reduce your net pay by 10% — it reduces it by less, because the contribution also lowers your tax. Model the exact trade-off with our Gross-Up Calculator.
Frequently Asked Questions
Is gross pay always higher than net pay?
Yes. Gross pay includes all earnings before any deductions. Net pay is what remains after mandatory taxes and voluntary deductions. The only way they’d be equal is if nothing at all were withheld — which doesn’t happen for any U.S. employee, because FICA alone is mandatory.
What percentage of my gross pay do I take home?
Most W-2 employees take home 70% to 85% of their gross pay. The exact percentage depends on your federal tax bracket, state tax rate, and benefit deductions. Someone in Texas with no state income tax and minimal deductions might keep 82%+. Someone in California with a high 401(k) contribution might keep closer to 65%. Find your exact percentage with our State Paycheck Calculators.
Is the salary on my offer letter gross or net?
It’s virtually always gross. When an employer says “the position pays $75,000,” they mean $75,000 before taxes and deductions. Your actual take-home (net) will be lower. For a detailed breakdown of why, see our guide: Why Is My Paycheck Lower Than My Salary?
What is gross pay on a pay stub?
Gross pay on your pay stub is the total amount you earned during that pay period before any deductions. It appears at the top of the earnings section, typically labeled “Gross Pay” or “Gross Earnings,” with both a current-period amount and a year-to-date (YTD) total. For a full walkthrough of every line, see our pay stub reading guide.
How do I increase my net pay without increasing my gross pay?
You have a few levers:
- Adjust your W-4. If you consistently get a large refund, you’re over-withholding. The IRS Withholding Estimator can help you recalibrate.
- Review your benefit elections. You might be paying for coverage you don’t need, or you could switch to a high-deductible plan with an HSA for potential savings.
- Check for payroll errors. Compare your stub against your enrollment summary — mistakes happen and they cost you money every pay period.
- Move to a lower-tax state. If you have geographic flexibility, switching from a high-tax state to a no-income-tax state can boost net pay by thousands.
What’s the difference between gross income and gross pay?
In payroll, they mean the same thing: your total earnings before deductions. In tax and accounting contexts, “gross income” can be broader — it may include investment income, rental income, alimony, and other non-wage sources. On your pay stub, “gross pay” refers specifically to wages from your employer.
Does overtime count as gross pay?
Yes. Overtime wages are part of your gross pay. They’re included in the earnings section of your pay stub and are subject to all the same taxes (federal, FICA, state). Under the 2026 One Big Beautiful Bill Act, a portion of overtime may be deductible — see our no-tax-on-overtime guide for the details.
What is AGI and how does it relate to gross pay?
Adjusted Gross Income (AGI) is your gross income minus specific “above-the-line” deductions (like student loan interest, IRA contributions, and half of self-employment tax). AGI is a tax concept used on your annual return — it’s not on your pay stub. Your pay stub gross pay feeds into your W-2, which feeds into your AGI calculation on Form 1040. Estimate yours with our AGI Calculator.
The Bottom Line
Gross pay is what you earn. Net pay is what you keep. The difference is taxes and deductions — and that gap runs between 15% and 35% of your gross for most American workers.
Every financial decision you make — budgeting, negotiating a raise, comparing job offers, applying for a mortgage — requires you to know which number you’re looking at. Your offer letter and your tax return care about gross. Your bank account and your monthly bills care about net.
If you want to stop guessing and see the exact math for your salary, state, and benefit elections, run it through our 50-State Paycheck Calculator. And if you want to understand every line item that sits between gross and net on your pay stub, our complete pay stub guide walks through each one.
This article is for general educational purposes and is not tax or financial advice. Tax rules change and individual situations vary — consult a qualified tax professional for guidance specific to you.