Gross Pay vs. Net Pay: What's the Difference?
Updated July 20, 2026 · Figures reflect 2026 IRS, SSA, and state tax data — see our methodology.
Gross pay is what you earn on paper — the salary in your offer letter or your hourly rate times hours worked. Net pay (take-home pay) is what actually lands in your bank account after taxes and deductions. For a typical U.S. worker the gap runs 20–30% of gross, and misunderstanding it is the number-one cause of first-paycheck shock, blown budgets, and apartment applications that quote the wrong income. This guide maps everything that sits between the two numbers.
The two numbers, precisely
- Gross pay — total compensation for the pay period before anything is removed: base wages or salary, overtime, bonuses, commissions, tips. This is the number employers, lenders, and the IRS start from.
- Net pay— gross minus taxes and all deductions. This is the "amount deposited" line on your stub, and the only number your budget should be built on.
Everything that comes out, in order
1. Pre-tax deductions
Taken from gross before taxes are computed, which lowers your taxable income:
- Traditional 401(k) / 403(b) retirement contributions
- Employer health, dental, and vision insurance premiums
- HSA and FSA contributions
- Commuter/transit benefits and some group life insurance
Because they shrink the tax base, each pre-tax dollar reduces net pay by less than a dollar — often only 65–75 cents. (Details and examples in 401(k) and your paycheck.)
2. Taxes
- Federal income tax — progressive 10–37% brackets; see how paycheck taxes work
- FICA — 6.2% Social Security + 1.45% Medicare; see what is FICA
- State income tax — 0% in nine states, up to 13%+ elsewhere, plus local taxes in some cities/counties
3. Post-tax deductions
Removed after taxes, so they do not reduce your tax bill:
- Roth 401(k) contributions
- Disability or supplemental life insurance bought after-tax
- Union dues, charitable payroll giving
- Wage garnishments and child support (court-ordered)
Worked example: $60,000 salary, biweekly
A single filer in a 4%-tax state contributing 5% to a traditional 401(k) with a $150/paycheck health premium:
| Line | Per paycheck | Annual |
|---|---|---|
| Gross pay | $2,307.69 | $60,000 |
| 401(k) 5% (pre-tax) | −$115.38 | −$3,000 |
| Health premium (pre-tax) | −$150.00 | −$3,900 |
| Federal income tax | −$174.00 | −$4,524 |
| Social Security 6.2% | −$133.75 | −$3,478 |
| Medicare 1.45% | −$31.28 | −$813 |
| State tax ~4% | −$85.00 | −$2,210 |
| Net pay | ≈ $1,618 | ≈ $42,075 |
Net is almost exactly 70% of grosshere — and note that $3,000 of the "missing" money is the worker's own 401(k) savings, not tax. Health premiums here are illustrative; yours may differ a lot by employer and plan tier.
Where each number matters in real life
| Situation | Number used |
|---|---|
| Job offers and salary negotiation | Gross |
| Mortgage and rental income requirements | Gross (usually) |
| Tax brackets and IRS forms | Gross → adjusted |
| Monthly budgeting and savings rates | Net |
| "Can I afford this car payment?" | Net |
The classic mistake is budgeting rent at "30% of income" using gross. A $75,000 earner grossing $6,250/month actually takes home roughly $4,880 — 30% of gross ($1,875) is really 38% of their usable money.
Rules of thumb for estimating net from gross
- $40,000–$70,000, moderate-tax state: net ≈ 76–80% of gross (before benefits/401k)
- $80,000–$150,000: net ≈ 72–76% in most states; 68–72% in California/New York/Oregon
- No-tax states (TX, FL, WA…): add roughly 3–5 points to any of the above
These are estimates only — filing status, dependents, and pre-tax benefits move the line. For your exact number, the state paycheck calculator computes 2026 federal, FICA, and state tax from your real inputs, and the salary ↔ hourly converter handles wage-based math.
Reading the two numbers off your own documents
Where to find each figure when paperwork asks for it:
- Offer letter:always gross. "$70,000 annualized" or "$33.65/hour" — no offer letter quotes net, because your W-4, state, and benefit elections are not known yet.
- Pay stub: both. Gross is the top line of the earnings block; net is the deposit line at the bottom. The YTD columns hold the annual versions. (Full tour: how to read your pay stub.)
- W-2: neither, confusingly. Box 1 is gross minus pre-tax deductions— which is why it is usually smaller than your salary and why January payroll inboxes fill with "my W-2 is wrong" tickets that are not wrong.
- Loan and rental applications: they almost always want gross — but a good affordability decision should be made against your net.
Frequently asked questions
Is annual salary gross or net?
Gross, always. When someone says "I make $80k," that is before taxes. Comparing your net deposit to a friend's quoted gross salary makes every job on Earth look underpaid.
Why did my net pay change when my salary did not?
Common triggers: new-year tax tables and FICA limits, open-enrollment premium changes, crossing the Social Security wage base (net jumps up late in the year), 401(k) contribution changes, or a state tax change. Any one line moving changes the bottom line.
Which is used for overtime and bonus calculations?
Both start from gross. Overtime is 1.5× your gross hourly rate (see is overtime taxed more?), and bonuses are withheld from gross under supplemental rules (see why is my bonus taxed so much?).
Bottom line: negotiate in gross, live in net. Estimate yours for any state with the paycheck calculator.