Gross vs. Net Pay: What's the Difference?
Gross is what you earn; net is what you keep. Every paycheck question — from 'why is my check smaller than my salary?' to budgeting an hourly job — starts with this distinction.
The definitions
Gross pay is total earnings before anything is taken out: hourly wages × hours worked (plus overtime, tips, bonuses, commissions), or the salary amount per pay period. Net pay — take-home pay — is what remains after taxes and deductions land.
Example: $20/hour × 80 hours = $1,600 gross for the period. After federal income tax, Social Security and Medicare (7.65%), state tax, and a health-insurance premium, the deposit might be roughly $1,250 — that's net.
What comes out between gross and net
Mandatory: federal income tax withholding, Social Security (6.2%) and Medicare (1.45%), state and sometimes local income tax. Voluntary: health/dental premiums, 401(k) contributions, HSA/FSA, and any wage garnishments.
Pre-tax deductions (like a traditional 401(k) or most health premiums) reduce taxable income before taxes are figured, so they shrink the tax bite as they shrink the check.
Gross vs net salary, for employers
When you offer '$52,000 a year,' that's gross. The employee's net will vary with their W-4, state, and benefit elections — and your total cost as the employer is higher than gross, since you pay matching FICA, unemployment taxes, and benefits on top. Accurate hours are the foundation: gross pay for hourly staff is only as correct as the time records behind it.
FAQ
What is the difference between gross and net pay?
Gross pay is earnings before deductions; net pay is what's left after taxes and deductions — the amount actually deposited.
Is salary gross or net?
Quoted salaries are gross. A $60,000 salary means $60,000 before taxes and deductions, not in your bank account.
How do I calculate net pay from gross?
Subtract pre-tax deductions, then federal/state income tax withholding and FICA (7.65%), then post-tax deductions. Payroll software or your provider's calculator does this per your W-4.
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