Gross Pay vs Net Pay in the US: What's the Difference?
Last updated: October 2026
The short answer: gross pay is your total earnings before anything is taken out. Net pay, also called take-home pay, is what lands in your bank account after taxes and deductions. In the US the formula is simple: net pay = gross pay − taxes − deductions. For a single worker earning $60,000 in a state with no income tax, net pay is about $50,390 a year in 2026, which is roughly 84% of gross.
Gross pay vs net pay: the definitions
Gross pay is the number on your offer letter or in your hourly rate times your hours. It includes base pay plus overtime, bonuses, commissions and tips. Net pay is the amount that actually reaches you. Rent, groceries and savings all come out of net pay, which is why it's the number to build a budget around.
What sits between gross and net
The gap is made up of two groups.
Taxes. Federal income tax, Social Security (6.2%), Medicare (1.45%) and, in most states, state income tax. Some cities add a local tax. The step-by-step logic is in how paycheck taxes work.
Deductions. Choices you make or benefits you sign up for: health insurance premiums, retirement contributions, a transit pass, union dues. Paycheck deductions explained shows which ones lower your tax bill.
Example 1: the plain version
Take a single worker in Texas, which has no state income tax, earning $60,000 with no other deductions. Using 2026 rules, the year looks like this:
| Item | Per year |
|---|---|
| Gross pay | $60,000 |
| Federal income tax | −$5,020 |
| Social Security and Medicare | −$4,590 |
| Net pay | $50,390 |
That's about $4,199 a month, or $1,938 per biweekly paycheck, against gross figures of $5,000 and $2,308. Taxes took $9,610, or 16% of gross.
Example 2: the real-life version
Most people aren't in that tidy situation. Suppose the same worker puts 6% of pay ($3,600) into a traditional 401(k) and pays $2,400 a year for health insurance through work. Both come out before income tax, and the insurance is also exempt from Social Security and Medicare.
| Item | Per year |
|---|---|
| Gross pay | $60,000 |
| Federal income tax | −$4,300 |
| Social Security and Medicare | −$4,406 |
| 401(k) contribution | −$3,600 |
| Health insurance | −$2,400 |
| Net pay | $45,294 |
Net pay is now about $3,774 a month or $1,742 per biweekly check. That's roughly $5,100 less than Example 1. But look closer: $3,600 of it is savings the worker still owns and $2,400 buys health coverage they'd otherwise pay for. The cash drop feels bigger than the real loss.
How gross pay shows up on your W-2
At the end of the year your employer sends a Form W-2, and it shows why gross pay isn't the same as taxable wages. According to the IRS form, Box 1 reports wages, tips and other compensation, Box 2 federal income tax withheld, Box 3 Social Security wages, Box 4 Social Security tax withheld, Box 5 Medicare wages and tips, and Box 6 Medicare tax withheld. In Example 2, Box 1 would be about $54,000 ($60,000 minus the 401(k) and the insurance), while Boxes 3 and 5 would be about $57,600, because a traditional 401(k) lowers income tax but not Social Security or Medicare. So one person can have three different "wage" numbers on a single form. To see how each deduction fits, read what is taxable income and what is FICA tax.
Gross vs net for hourly workers and overtime
The idea is identical, but your gross changes with your hours. Overtime raises gross, and because it's taxed with the rest of your pay, you won't keep all of it. Convert your wage to a yearly figure with the hourly to salary calculator, then estimate net. For the rules, see how overtime pay works.
A better way to budget from net pay
Many people multiply a paycheck by two to get their monthly income. That's wrong if you're paid biweekly. Instead, take your net pay per check, multiply by the number of checks in a year, and divide by 12. With $1,938.08 biweekly: $1,938.08 × 26 ÷ 12 = $4,199, not $3,876. The difference is the two extra paychecks hiding in the year. Learn more in biweekly vs semimonthly pay.
Why this matters when comparing jobs
A higher gross doesn't always mean higher net. Health insurance that costs $400 a month at one employer and $100 at another can swing your net pay by thousands, and so can living in a state with income tax. Before you accept an offer, estimate net pay for each, as described in how to compare job offers, and see take-home pay vs salary for typical percentages.
What lenders and landlords look at
When you apply for a loan or an apartment, the application often asks for gross income, because it is the standard way to compare applicants. Your day-to-day life, though, runs on net pay. It helps to know both numbers. Write down your gross for applications and your net for your budget, and keep a recent pay stub handy, since it shows both in one place. If you want to understand every line on it, how to read a pay stub walks through the layout.
Can you raise your net pay?
Sometimes. You can correct over-withholding by updating your Form W-4, or reduce deductions you don't need. Be careful, though: cutting retirement savings gives you cash today but costs you later. And a big refund isn't a bonus; it's your own money returned.
Frequently asked questions
Is net pay always lower than gross pay? Yes, unless something is wrong, because taxes and deductions are subtracted from gross pay.
Is take-home pay the same as net pay? Yes. Both mean the amount you receive after all taxes and deductions.
How do I calculate net pay from gross pay? Subtract federal, state and payroll taxes and any deductions. Or enter your salary in the US paycheck calculator.
Do bonuses have a different net? Often yes, because employers commonly withhold federal tax on bonuses at a flat 22%. Try the bonus tax calculator.
Written by Muhammad Tabish. The W-2 box descriptions follow the IRS Form W-2 and its General Instructions (checked October 2026). Examples are for a single filer using 2026 rules, with no state tax in the Texas cases. Estimates only; not tax advice.