Gross Pay vs Net Pay: What's the Difference?
Key takeaway
Gross pay is earnings before deductions; net pay is what lands in the bank. See every deduction, 2026 limits and a worked paycheck example.
Gross pay is what an employee earns before anything is taken out: salary or hourly wages plus overtime, bonuses and commissions. Net pay is what they actually receive after taxes and deductions such as federal and state income tax, Social Security, Medicare, health premiums and retirement contributions. Net pay = gross pay − taxes − deductions. Below: how each is calculated, every common deduction with 2026 limits, and a worked paycheck example from gross to net.
What gross pay is
Gross pay: total earnings for a pay period before any taxes or deductions. It is the figure used to calculate most payroll taxes and benefit contributions.
How to calculate it:
- Salaried employees: annual salary ÷ number of pay periods. $60,000 paid biweekly (26 periods) is $2,307.69 per paycheck; paid semi-monthly (24 periods) it is $2,500.
- Hourly employees: regular hours × hourly rate, plus overtime. Non-exempt employees earn at least 1.5 times their regular rate for hours over 40 in a workweek. 42 hours at $20 = (40 × $20) + (2 × $30) = $860.
- Other earnings added in: bonuses, commissions, shift differentials, paid time off used, holiday pay and reported tips.
See biweekly pay and semi-monthly pay for how the pay frequency changes each paycheck.
What net pay is
Net pay (take-home pay): the amount deposited or paid to the employee after all withholding and deductions are subtracted from gross pay.
The gap between the two is made up of three groups: taxes the employer must withhold, benefit deductions the employee chose, and deductions required by a court or agency, such as garnishments.
Every deduction between gross and net
| Deduction | 2026 rate or limit | Pre-tax or post-tax |
|---|---|---|
| Federal income tax | Based on the employee's Form W-4 and IRS withholding tables | Tax |
| State and local income tax | Varies; nine states have no tax on wages | Tax |
| Social Security | 6.2% of wages up to $184,500 (2026 wage base) | Tax |
| Medicare | 1.45% of all wages, plus 0.9% on wages over $200,000 | Tax |
| 401(k) / 403(b) traditional | Up to $24,500 employee deferral in 2026 | Pre-tax for income tax, but still subject to Social Security and Medicare |
| Roth 401(k) | Shares the $24,500 limit | Post-tax |
| Health, dental, vision premiums (Section 125 plan) | Plan-specific | Pre-tax for income tax and FICA |
| HSA through payroll | $4,400 self-only / $8,750 family in 2026 | Pre-tax for income tax and FICA through a cafeteria plan |
| Health FSA | $3,400 in 2026 | Pre-tax for income tax and FICA |
| Garnishments (child support, tax levies, student loans) | Set by the order, within federal and state caps | Post-tax |
| Other voluntary deductions (union dues, charity, supplemental insurance) | Varies | Usually post-tax |
Sources: Social Security and Medicare rates (IRS Topic 751), the 2026 wage base (SSA), the Additional Medicare Tax (IRS, Additional Medicare Tax), the 401(k) limit (IRS), HSA limits (Rev. Proc. 2025-19) and the health FSA limit (Rev. Proc. 2025-32). The nine states without a tax on wage income are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
Pre-tax vs post-tax deductions
A pre-tax deduction comes out before tax is calculated, so it lowers the tax bill as well as the paycheck. A $100 pre-tax health premium for someone in the 12% federal bracket, paying 7.65% FICA and a 5% state tax, reduces take-home pay by about $75, not $100. A post-tax deduction reduces take-home pay dollar for dollar.
Traditional 401(k) contributions are the common exception people miss: they lower federal (and most state) income tax, but Social Security and Medicare are still charged on them.
Worked example: from gross to net
A salaried employee earns $60,000 a year, is paid biweekly, contributes 5% to a traditional 401(k) and pays $100 per paycheck for health insurance through a Section 125 plan. They file as single with a standard W-4 and live in a state with a flat 5% income tax (a simplified example).
| Line | Amount | How it is worked out |
|---|---|---|
| Gross pay | $2,307.69 | $60,000 ÷ 26 |
| Health premium (pre-tax) | −$100.00 | Elected; exempt from income tax and FICA |
| 401(k) at 5% (pre-tax) | −$115.38 | 5% of gross; exempt from income tax only |
| Social Security | −$136.88 | 6.2% × ($2,307.69 − $100) |
| Medicare | −$32.01 | 1.45% × ($2,307.69 − $100) |
| Federal income tax | −$167.23 (estimate) | 2026 single brackets and standard deduction applied to $2,092.31 of taxable pay |
| State income tax | −$104.62 | 5% × $2,092.31 |
| Net pay | $1,651.57 | About 72% of gross |
The federal figure is an estimate for illustration. Payroll systems calculate withholding with the tables in IRS Publication 15-T, and the result depends on the employee's W-4 entries.
Why net pay is lower than people expect
- They forget Social Security and Medicare: 7.65% comes off almost every dollar before income tax is considered.
- State or city income tax, such as New York City or Philadelphia wage taxes, adds to the gap.
- Benefit elections made during onboarding, such as family health coverage or a high 401(k) percentage.
- Bonuses look heavily taxed because employers often withhold federal tax on supplemental wages at a flat 22% (IRS Publication 15), plus FICA and state tax.
- Once year-to-date wages pass $184,500, Social Security withholding stops for the rest of the year, so net pay rises late in the year for high earners.
How HR and payroll teams can cut paycheck questions
- 1Show new hires a sample pay stub with their actual elections before their first payday.
- 2Tell employees the first paycheck may be partial or delayed, depending on your pay cycle.
- 3Remind employees to review their W-4 after life events such as marriage or a second job.
- 4Label pre-tax deductions clearly on the stub, so people can see which ones lowered their taxable wages.
- 5Use payroll software that gives employees self-service access to pay stubs and year-to-date totals.
For the full process, see our guide on how to do payroll.
Frequently asked questions about gross pay vs net pay
What is the difference between gross pay and net pay?
Gross pay is total earnings before deductions. Net pay is what the employee receives after income tax, Social Security, Medicare, benefit contributions and any garnishments are taken out.
Is salary gross or net?
Salary figures in offers and contracts are almost always gross. A $60,000 salary is $60,000 before any taxes or deductions.
How do you calculate net pay from gross pay?
Subtract pre-tax deductions to get taxable wages, calculate income tax and FICA on the right wage base for each, then subtract all taxes and any post-tax deductions from gross pay.
What percentage of gross pay is net pay?
It depends on income, state, W-4 elections and benefits. In the example above, a $60,000 earner with modest benefits takes home about 72% of gross. Higher earners and people with large benefit elections take home a smaller share.
Are Social Security and Medicare taken from gross pay?
Yes. Employees pay 6.2% Social Security (up to the $184,500 wage base in 2026) and 1.45% Medicare on their wages, after subtracting Section 125 deductions but not traditional 401(k) contributions.
Is gross pay before or after taxes?
Before. Gross pay is the full amount earned; taxes are withheld from it to arrive at net pay.
About the author
Editorial Lead, Software Evaluation
Rajat leads software evaluation at PeopleOpsClub and does the primary hands-on review work behind its software profiles, pricing breakdowns and head-to-head comparisons. He previously built and ran SpotSaaS (spotsaas.com) and Revoyant (revoyant.com), two software research and review platforms, and has spent that time working through HR and people operations products directly — signing up for trials, configuring admin settings, mapping how pricing actually scales and testing how support behaves — rather than relying on vendor collateral or aggregated review scores.
Fact-checked by Chandrasmita, Fact Checker.
Free templates for this
- Free calculator
Payroll Gross-to-Net Worksheet
Gross-to-net payroll worksheet in order: pre-tax deductions, taxable wages, FICA, Additional Medicare, Pub 15-T withholding, post-tax items, net pay.
- Free template
Pay Stub Template
Employer pay stub template with current and YTD columns, the 9 items California Labor Code 226 requires, New York WTPA fields, and a sample that adds up.
- Free tracker
Payroll Register Template
Payroll register template with per-employee columns, a pay run that reconciles, employer taxes, GL and bank reconciliation, and FLSA/IRS retention rules.
More on Payroll Software
PEO vs Payroll Provider: Full HR Outsourcing vs Payroll-Only
A payroll provider processes your payroll. A PEO co-employs your workforce and bundles payroll with benefits, compliance, and HR support. The right choice depends on how much HR infrastructure you want to outsource and how much you want to own.
HRIS vs Payroll Software: Where They Overlap
The difference between an HRIS and payroll software, where they overlap, when one system is enough, and what each costs by company size.
Flexible Pay: What It Is and How It Works
Flexible pay gives employees more control over when they access earned wages instead of waiting for a standard payroll cycle. The strongest flexible-pay programs improve financial flexibility without creating payroll confusion, compliance gaps, or hidden fee frustration.