Gross Pay vs Net Pay
The difference between what you earn and what you take home — explained.
By Reba Donaldson · Last reviewed: April 2026
The simple definitions
Gross pay is what you earn before anything is deducted. If your salary is $60,000 a year and you're paid biweekly (26 times per year), your gross paycheck is $2,308 each pay period.
Net pay is what actually shows up in your bank account after all the deductions and taxes have been taken out. For most employees, net pay is 65–75% of gross pay.
What gets deducted between gross and net
Here's the order of operations every paycheck goes through:
- Start with gross pay. Your hourly wage × hours, or your salary ÷ pay periods.
- Subtract pre-tax deductions. Traditional 401(k), traditional health insurance, HSA, FSA, dependent care FSA. These reduce your taxable income.
- Calculate and subtract federal income tax. Based on your W-4 elections and IRS withholding tables.
- Subtract FICA taxes. 7.65% (6.2% Social Security + 1.45% Medicare).
- Subtract state income tax. Varies by state — 0% in nine states, up to 13.3% in California.
- Subtract local income tax. Some cities and counties have their own income tax (NYC, Philadelphia, etc.).
- Subtract after-tax deductions. Roth 401(k), life insurance, disability insurance, union dues, garnishments.
- What's left is net pay. Direct-deposited or paper check.
A real example
Let's say Sarah earns a $60,000 salary in Florida (no state income tax), is paid biweekly, contributes 6% to a traditional 401(k), and has $50 per check for health insurance.
– Traditional 401(k) (6%): –$138
– Health insurance: –$50
Taxable income: $2,120
– Federal tax (~10%): –$210
– Social Security (6.2%): –$143
– Medicare (1.45%): –$33
– State tax: $0 (Florida)
Net pay: $1,734
Sarah's gross is $2,308 but her net is $1,734 — she takes home about 75% of gross. The other 25% went to retirement savings, health insurance, and taxes.
Why gross pay still matters
Even though net pay is what you actually take home, gross pay is what most financial calculations use:
- Mortgage qualification — lenders use gross income to calculate debt-to-income ratios
- Apartment rentals — most landlords require gross income of 3x rent
- Job offers — salary numbers are always gross, not net
- Tax brackets — based on gross income (well, technically on adjusted gross income, but close)
- Retirement contribution limits — 401(k) limits are based on the lesser of compensation or the IRS limit
For day-to-day budgeting and spending, however, net pay is the only number that matters. You can't spend money you don't actually receive.