Gross Pay vs Net Pay: What Comes Out in Between

What is gross pay?

Gross pay is total compensation for the pay period before any withholding: salary or hourly wages (hours times rate), overtime, bonuses, commissions, tips reported to your employer, and taxable fringe benefits. A salaried employee earning $60,000 a year and paid biweekly (26 checks) has gross pay of $2,307.69 per check. An hourly worker earning $25 for 40 hours plus 5 overtime hours at time-and-a-half has weekly gross pay of $1,000 + $187.50 = $1,187.50.

Gross salary is the annual version: the number in your offer letter. When a lender, landlord or form asks for "gross income", they almost always mean this pre-tax figure.

What is net pay?

Net pay, or take-home pay, is gross pay minus every deduction: federal income tax, Social Security and Medicare, state and local income taxes, and voluntary or court-ordered deductions such as retirement contributions, insurance premiums and wage garnishments. It is the amount on the check or direct deposit.

What comes out between gross and net

Deductions fall into three groups, and the order matters because pre-tax deductions reduce the wages that some taxes are calculated on.

Worked example: $60,000 salary, single, 2026

Assume a single filer in a state with no income tax, paid biweekly, contributing 6% to a traditional 401(k) ($3,600 a year) and paying $100 per check for health insurance pre-tax ($2,600 a year).

Federal taxable wages: $60,000 minus $3,600 minus $2,600 = $53,800. Subtracting the $16,100 standard deduction leaves $37,700 of taxable income, which produces about $4,276 of federal income tax for the year.

FICA wages: $60,000 minus the $2,600 cafeteria-plan premium = $57,400 (401(k) deferrals are still subject to FICA). Social Security and Medicare together are 7.65%, or about $4,391.

Annual net pay: $60,000 minus $3,600 minus $2,600 minus $4,276 minus $4,391 = about $45,133, or roughly $1,736 per biweekly check out of $2,308 gross. Net pay is about 75% of gross, but $3,600 of the difference is going into your own retirement account.

• Gross per check: $2,307.69
• Pre-tax 401(k) and health: $238.46
• Federal income tax: about $164.46
• Social Security and Medicare: about $168.89
• Net per check: about $1,735.88

How to convert between gross and net

For a rough estimate, multiply gross pay by 0.70 to 0.80 to approximate net pay for middle incomes in a state with income tax, or 0.75 to 0.85 in a no-income-tax state. To go the other way (what gross salary do I need to take home $4,000 a month?), divide the net target by the same ratio: $4,000 divided by 0.76 is about $5,263 a month, or $63,000 a year. These shortcuts are only starting points; use a paycheck calculator with your state, filing status and deductions for a real number.

Gross vs net pay on your W-2

Your Form W-2 shows several different "wage" numbers, which confuses many people comparing it with their final pay stub. None of them is your net pay. Box 1 is federal taxable wages: gross pay minus traditional 401(k) deferrals and pre-tax benefits. Box 3 is Social Security wages and box 5 is Medicare wages, which are usually higher than box 1 because 401(k) deferrals are still subject to FICA. Box 2 shows the federal income tax withheld for the whole year.

In the $60,000 example above, box 1 would show $53,800, boxes 3 and 5 would show $57,400, and box 2 about $4,276. Your year-to-date gross pay on the last stub would still be $60,000.

Reading the gross-to-net math on a pay stub

Every pay stub runs the same calculation, usually in two columns: the current pay period and year-to-date (YTD). It starts with gross earnings, subtracts pre-tax deductions to reach taxable wages, subtracts taxes, then subtracts after-tax deductions to land on net pay. If the current column looks wrong, the YTD column often shows why, for example a one-time benefits catch-up or a retroactive raise.

Five checks catch most payroll errors:

• Gross earnings: hours times rate plus any overtime, holiday or shift premium. Salaried workers should see annual salary divided by the number of pay periods.
• Federal taxable wages versus Social Security wages: the gap should equal your traditional 401(k) deferral for the period.
• FICA: Social Security should be exactly 6.2% of Social Security wages and Medicare 1.45%. If Social Security stops late in the year, you have passed the $184,500 wage base for 2026.
• State tax: confirm it is going to the state where you live or work, especially after a move or a switch to remote work.
• After-tax items: Roth 401(k), garnishments, union dues and payroll charity gifts should match what you signed up for.

Pay that is in gross but never reaches you, and the reverse

Some items raise gross pay even though you never receive them as cash. If your employer pays for group-term life insurance coverage above $50,000, the cost of the excess coverage is a taxable fringe benefit: it is added to your wages, taxed, then backed out before net pay. Personal use of a company car works the same way. These are called imputed income.

The reverse also happens. Employer 401(k) matches and the employer's share of health premiums are part of your compensation but are not in gross wages. The total cost of employer-sponsored health coverage appears on your W-2 in box 12 with code DD, for information only; it is not taxable.

Wage garnishments come out of net pay, and federal law caps them. Under Title III of the Consumer Credit Protection Act, an ordinary garnishment for consumer debt cannot exceed the lesser of 25% of disposable earnings or the amount by which weekly disposable earnings exceed 30 times the federal minimum wage of $7.25. Child support, federal tax levies and defaulted federal student loans follow their own, separate limits.