Gross pay is what you earn. Net pay is what you keep. The gap between them is every tax and deduction that comes out before the money reaches your bank account.
The Core Difference
| Term | Definition | Example ($60K salary, biweekly) |
|---|---|---|
| Gross Pay | Total earnings before deductions | $2,307.69 |
| Net Pay | Take-home pay after all deductions | $1,700-$1,850 |
Gross → subtract taxes and deductions → Net.
How to Calculate Gross Pay
Salaried Employees
| Pay Frequency | Formula | Example ($60,000/year) |
|---|---|---|
| Weekly (52x) | Salary ÷ 52 | $1,153.85 |
| Biweekly (26x) | Salary ÷ 26 | $2,307.69 |
| Semi-monthly (24x) | Salary ÷ 24 | $2,500.00 |
| Monthly (12x) | Salary ÷ 12 | $5,000.00 |
Hourly Employees
| Situation | Formula |
|---|---|
| Regular hours | Hours × hourly rate |
| With overtime | Regular hours × rate + overtime hours × (rate × 1.5) |
Example: $20/hr × 80 hours = $1,600 gross (biweekly)
What Gets Subtracted to Get Net Pay
Typical Deductions
| Deduction | Rate/Amount | Notes |
|---|---|---|
| Federal income tax | 10-37% | Based on brackets + W-4 |
| State income tax | 0-13% | Depends on state |
| Social Security (OASDI) | 6.2% | On first $168,600 |
| Medicare | 1.45% | No cap |
| Health insurance | Varies | Pre-tax |
| 401(k) contribution | Your choice | Pre-tax (traditional) |
| Dental/vision | Varies | Pre-tax |
Example Calculation: $75,000 Salary, Biweekly
| Item | Amount |
|---|---|
| Gross Pay | $2,884.62 |
| Federal Income Tax (~18%) | -$519.23 |
| California State Tax (~6%) | -$173.08 |
| Social Security (6.2%) | -$178.85 |
| Medicare (1.45%) | -$41.83 |
| Health Insurance | -$150.00 |
| 401(k) 5% | -$144.23 |
| Net Pay | $1,677.40 |
Net pay = 58% of gross in this example (high-tax state, good benefit enrollment).
Net Pay by Salary Level
| Annual Salary | Gross Per Check (Biweekly) | Estimated Net | % Kept |
|---|---|---|---|
| $30,000 | $1,153 | $920-$980 | 81% |
| $45,000 | $1,731 | $1,320-$1,430 | 78% |
| $60,000 | $2,308 | $1,680-$1,850 | 74% |
| $80,000 | $3,077 | $2,160-$2,400 | 72% |
| $100,000 | $3,846 | $2,570-$2,870 | 69% |
| $150,000 | $5,769 | $3,700-$4,200 | 68% |
Estimates assume single filer, average state taxes, moderate benefit elections.
Why Gross vs. Net Matters
For Job Offers
Always ask what the net pay will be, not just the salary. A $10,000 salary raise means a $5,500-$7,000 increase in take-home pay, not $10,000.
For Budgeting
Always budget based on net pay — that is the actual amount deposited. Common budgeting mistake: planning based on gross salary and overspending.
For Loans
Lenders typically use gross income to calculate debt-to-income ratios for mortgage qualification. But you repay from net income.
| Metric | Based On |
|---|---|
| Mortgage qualification | Gross income |
| Monthly budget | Net pay |
| Tax return | Gross income |
Pre-Tax vs. Post-Tax Deductions
The order matters — pre-tax deductions reduce your taxable gross before taxes are calculated:
| Deduction Type | Reduces Taxable Income? | Examples |
|---|---|---|
| Pre-tax | Yes | 401(k) traditional, HSA, health insurance, FSA |
| Post-tax | No | Roth 401(k) contributions, life insurance, wage garnishments |
Pre-tax example: Contributing $400/paycheck to a 401(k) actually costs you roughly $300 in take-home pay, because it reduces your tax bill.
Related: Understanding Paycheck Deductions | Why Is So Much Taken Out of My Paycheck | How Does a Paycheck Work