What is gross pay? Gross pay is the total amount you earn in a pay period before any taxes or deductions are taken out. Net pay, often called take-home pay, is what is left after taxes, benefits and other deductions. Your net pay is the amount that actually lands in your bank account.
What does gross pay mean at work?
Gross pay is your starting number. It includes everything you earned for the pay period:
- Hourly workers: hours worked × hourly rate, plus any overtime.
- Salaried workers: annual salary ÷ number of pay periods in the year.
- Extras: bonuses, commissions, tips reported through payroll and shift differentials.
Job offers and salary discussions are almost always in gross terms. If an offer says $60,000 a year, that is gross. Your take-home pay will be lower.
What does net pay mean?
Net pay is gross pay minus everything taken out. Common deductions include:
- Federal income tax (based on your W-4)
- Social Security tax (6.2% of wages, up to an annual limit)
- Medicare tax (1.45% of wages, with an extra tax for very high earners)
- State and local income tax, where they apply
- Pre-tax deductions such as 401(k) and health premiums
- Post-tax deductions such as Roth 401(k) contributions or wage garnishments
Gross pay vs net pay: a worked example
Alex earns $26 an hour, worked 80 hours in a biweekly pay period, and lives in a state with income tax. The tax amounts below are rounded examples for illustration only.
| Line | Amount |
|---|---|
| Gross pay (80 × $26) | $2,080.00 |
| 401(k) (pre-tax, 5%) | −$104.00 |
| Health insurance (pre-tax) | −$90.00 |
| Federal income tax (example) | −$165.00 |
| Social Security (6.2% of $1,990) | −$123.38 |
| Medicare (1.45% of $1,990) | −$28.86 |
| State income tax (example) | −$70.00 |
| Net pay | $1,498.76 |
Social Security and Medicare here are figured on $1,990 because the health premium is a Section 125 pre-tax deduction, while the 401(k) contribution does not reduce those two taxes.
Examples of gross and net pay in emails and messages
Offer letter: “Your starting gross salary will be $58,000 per year, paid biweekly.”
Employee to payroll: “My net pay dropped this check. Did my health premium change?”
Payroll reply: “Your gross pay is the same. The difference is the new 401(k) contribution you elected.”
Gross pay vs net pay at a glance
| Gross pay | Net pay | |
|---|---|---|
| Also called | Total earnings, pre-tax pay | Take-home pay |
| Includes deductions? | No | Yes, everything has been subtracted |
| Used for | Job offers, loan applications, salary comparisons | Personal budgeting |
| Where on pay stub | Top | Bottom |
How to use gross and net pay correctly
- Budget with net pay. Rent and bills are paid from what you actually receive.
- Compare offers with gross pay and benefits. A lower gross salary with cheaper health coverage can leave you with more net pay.
- Check your pay stub each period. Make sure hours, rate and deductions are right. See how to read a pay stub.
- Use the right number on forms. Loan and rental applications usually ask for gross income.
How do you calculate gross pay per paycheck?
Your gross pay per paycheck depends on how you’re paid and how often. For salaried employees, divide your annual salary by the number of pay periods in the year:
| Pay schedule | Paychecks per year | Gross pay on a $52,000 salary |
|---|---|---|
| Weekly | 52 | $1,000.00 |
| Biweekly (every two weeks) | 26 | $2,000.00 |
| Semimonthly (twice a month) | 24 | $2,166.67 |
| Monthly | 12 | $4,333.33 |
For hourly employees, multiply your regular hours by your hourly rate, then add overtime. Under the federal Fair Labor Standards Act, non-exempt employees earn at least 1.5 times their regular rate for hours over 40 in a workweek. For example, 44 hours at $20 an hour is (40 × $20) + (4 × $30) = $920 gross for that week. Learn more about pay periods and time and a half.
Why does my net pay change from one paycheck to the next?
If your gross pay stays the same but your net pay moves, a deduction has usually changed. Common reasons include:
- New benefit elections: a change in health plan or 401(k) percentage during open enrollment.
- A W-4 update: changing your withholding changes how much federal income tax comes out.
- Extra pay: bonuses and overtime raise gross pay and the taxes withheld on it.
- Hitting an annual limit: once your wages pass the Social Security wage base for the year, that tax stops for the rest of the year, so net pay goes up.
- A third paycheck month: on a biweekly schedule, some benefit deductions are only taken from two checks a month.
- Garnishments or corrections: a court order or a payroll fix from a past period.
If you can’t match the change to one of these, ask your payroll or HR team to walk you through your pay stub line by line.
Is gross pay the same as taxable income?
Not always. Pre-tax deductions, such as traditional 401(k) contributions and many health premiums, reduce the wages that federal income tax is figured on. That’s why the “taxable wages” figure on your pay stub or Form W-2 can be lower than your gross pay.
Related terms
See more in our Payroll and Tax hub.
FAQ
Is gross pay before or after taxes?
Gross pay is before taxes and deductions. Net pay is after.
How do I calculate gross pay?
For hourly work, multiply hours by your hourly rate and add overtime and extras. For salary, divide your annual salary by the number of pay periods in a year.
How do I calculate net pay?
Start with gross pay and subtract taxes, pre-tax deductions and post-tax deductions. The result is your net, or take-home, pay.
Is salary gross or net?
Salaries in job offers are almost always quoted as gross annual pay, before taxes and deductions.
Why is my net pay different each paycheck?
Changes in hours, overtime, benefit elections, tax withholding or reaching an annual tax limit can all change net pay from one check to the next.
Sources
- IRS Topic 751: Social Security and Medicare Withholding Rates
- IRS Publication 15: Employer’s Tax Guide
This article is general information, not legal or tax advice. Check with a qualified professional for your situation.
