← All guides

Gross Pay vs. Net Pay: What's the Difference?

Gross pay is what you earn before anything is taken out. Net pay— your "take-home" — is what actually lands in your bank account after deductions. The gap between them is usually bigger than people expect.

Gross pay

Gross pay is your full salary or wage: the number in your offer letter, your hourly rate times hours worked, plus any bonuses or overtime. A "$60,000 salary" or "$25 an hour" is always gross unless stated otherwise.

What gets deducted

Between gross and net, several things come out — roughly in this order:

• Pre-tax deductions — traditional 401(k), health/dental premiums, HSA/FSA. These lower the income that gets taxed.
• Federal income tax — withheld based on your W-4 and the IRS tables.
• FICA — 6.2% Social Security + 1.45% Medicare (7.65%).
• State (and sometimes local) income tax — varies widely; nine states have none.
• Post-tax deductions — Roth 401(k), union dues, wage garnishments, etc.

A quick example

Take a $60,000 salary, single filer, no state income tax, no extra deductions. After federal income tax (~$5,000), Social Security ($3,720), and Medicare ($870), net pay is roughly $50,400 a year — about 84% of gross. Add a state income tax and it drops further. Add 401(k) and insurance and your take-home cash is lower still (but that money is still yours — it's just saved or spent on benefits, not lost).

Why it matters

Budgeting off your gross salary is the classic mistake — you can't spend gross. Always plan around net. To see your exact net pay by state, filing status, and pre-tax deductions, use the paycheck calculator, or read how paycheck taxes work.