Paycheck guide
Gross Pay vs Net Pay: What Is the Difference?
Gross pay and net pay are two of the most important paycheck terms to understand. Gross pay is what you earn before taxes and deductions. Net pay is what you actually take home after deductions are removed.
What is gross pay?
Gross pay is your total income before taxes, insurance, retirement contributions and other deductions. For salaried employees, gross pay usually starts with annual salary. For hourly workers, gross pay is based on hourly rate multiplied by hours worked.
What is net pay?
Net pay is your take-home pay. This is the amount that reaches your bank account after payroll deductions. Net pay is usually the number people use for budgeting.
Common deductions from gross pay
- Federal income tax
- State income tax
- Social Security tax
- Medicare tax
- Health insurance
- Retirement contributions
- Other employer deductions
Why net pay matters more for budgeting
A salary may look large on paper, but your monthly budget should be based on net pay. Rent, mortgage payments, groceries, debt payments and savings goals are usually paid from take-home income.
How to estimate net pay
You can estimate net pay by subtracting expected taxes and deductions from gross pay. A paycheck calculator can make this easier by showing monthly, biweekly and weekly estimates.
Try our Paycheck Calculator or Hourly Paycheck Calculator to estimate your own take-home pay.
Important note
This article is for educational purposes only and is not tax, payroll, legal or financial advice.