Gross Pay vs Net Pay: What Is the Difference?
February 25, 2026
Gross Pay vs Net Pay: The Simple Version
Gross pay is your total compensation before any deductions are taken out — the number at the top of your pay stub before anything is subtracted.
Net pay is what you actually receive — your paycheck amount after federal taxes, state taxes, FICA, and benefit deductions have all been subtracted.
The difference between gross and net is the sum of all your taxes and deductions.
What Is Gross Pay?
Gross pay includes all earnings for the pay period:
- Regular wages (hourly rate × hours, or salary portion)
- Overtime pay (1.5× regular rate for hours over 40)
- Bonuses and commissions
- Paid time off (PTO) payouts
- Shift differentials
For a salaried employee earning $75,000/year paid biweekly, gross pay per paycheck is $75,000 ÷ 26 = $2,884.62.
What Is Net Pay?
Net pay = Gross pay minus:
- Federal income tax withholding
- State income tax withholding (varies by state)
- Social Security tax (6.2% up to annual cap)
- Medicare tax (1.45%, no cap)
- Health insurance premiums
- 401(k) or retirement contributions
- Other voluntary deductions (FSA, dental, vision, life insurance)
Real Example: $75,000 Salary in California
Biweekly paycheck for a single filer with standard deductions:
- Gross pay: $2,884.62
- Federal income tax: −$346.15
- Social Security: −$178.85
- Medicare: −$41.83
- California state tax: −$183.46
- CA SDI: −$28.85
- Health insurance premium: −$120.00
- 401(k) 6%: −$173.08
- Net pay: $1,812.40
That is a 37.2% difference between gross and net — meaning this employee takes home 62.8 cents of every dollar earned.
Why Does the Gap Between Gross and Net Matter?
For budgeting
Always budget from your net pay, not your gross salary. Many people miscalculate their real income by forgetting that their stated salary is gross. Your actual monthly income is your net monthly pay.
For job offers
When evaluating a job offer, compare net pay — not just salary. A $90,000 offer in California nets significantly less than the same salary in Texas (no state income tax). Benefit costs also vary: one employer may cover 100% of health insurance, another may charge $500/month.
For loan applications
Lenders calculate debt-to-income ratio using gross income. But your actual payment capacity is based on net income. Know both numbers when applying for a mortgage or car loan.
For tax filing
Your W-2 reports gross wages, not net pay. But understanding the deductions on your pay stub helps you reconcile your W-2 and find any discrepancies.
Quick Formulas
- Net pay = Gross pay − taxes − deductions
- Take-home rate = Net pay ÷ Gross pay × 100%
- Total deductions = Gross pay − Net pay
Automate Pay Stub Data Extraction
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