Gross Pay vs Net Pay: Difference, Formula and Examples

Gross pay is what an employee earns before anything is taken out. Net pay is what they actually receive after taxes and deductions. The formula is net pay = gross pay − taxes − deductions. On a $60,000 salary paid biweekly, a typical employee's $2,307.69 gross paycheck becomes about $1,650 net.

What gross pay is

Gross pay: total earnings for a pay period before any taxes or deductions. It is the starting figure for payroll taxes and benefit contributions. See also the gross pay glossary entry.

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 (DOL Fact Sheet #23). 42 hours at $20 = (40 × $20) + (2 × $30) = $860. The overtime pay calculator does the arithmetic for any week.
• Other earnings added in: bonuses, commissions, shift differentials, paid time off used, holiday pay and reported tips.

See biweekly pay, semi-monthly pay and how many pay periods are in a year 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 a wage garnishment. The payroll deductions entry explains each group.

How to calculate net pay from gross pay

1. 1Start with gross pay for the period.
2. 2Subtract Section 125 pre-tax deductions (health, dental and vision premiums, health FSA, HSA through a cafeteria plan). The result is the wage base for Social Security and Medicare.
3. 3Subtract traditional 401(k) or 403(b) deferrals as well. The result is the wage base for federal (and most state) income tax.
4. 4Calculate Social Security (6.2%) and Medicare (1.45%) on the step 2 figure.
5. 5Calculate federal income tax withholding on the step 3 figure, using the employee's Form W-4 and the IRS tables, then state and local tax.
6. 6Subtract all taxes and any post-tax deductions (Roth 401(k), garnishments, union dues) from gross pay. What is left is net pay.

Every deduction between gross and net

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).

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.

Same salary, different pay frequencies

Pay frequency changes the size of each check, not the annual result. Using the same assumptions ($60,000 salary, $2,600 a year in pre-tax health premiums, 5% traditional 401(k), single filer with a standard 2026 W-4, flat 5% state tax), every schedule nets about $42,941 a year:

Health premiums ($2,600 ÷ number of checks) and 401(k) deferrals (5% of gross) are also taken from each check but are not shown as separate columns. Federal withholding uses the 2026 annual percentage method in IRS Publication 15-T. Illustrative only; actual withholding depends on the W-4.

Hourly example: overtime week

An hourly employee earns $22 an hour, works 45 hours in one week, is paid weekly, files single with a standard 2026 W-4, has no benefit deductions and works in Texas, which has no state income tax. Illustrative figures:

The federal deduction for qualified overtime created by the 2025 tax law covers the premium half of FLSA overtime, up to $12,500 a year ($25,000 for joint filers), for 2025 through 2028 (IRS, guidance on tips and overtime). It is claimed as an income tax deduction, so it does not remove overtime from the paycheck's Social Security and Medicare calculation.

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.

State and local taxes

Where an employee lives and works changes net pay more than almost any other factor. Nine states have no tax on wage income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Others use a flat rate or graduated brackets, and some cities and counties add their own wage tax, as New York City and Philadelphia do. A few states also take employee contributions for disability or paid family leave programs from gross pay. Run a sample paycheck for each state before quoting take-home pay to a candidate.

How HR and payroll teams can cut paycheck questions

1. 1Show new hires a sample pay stub with their actual elections before their first payday.
2. 2Tell employees the first paycheck may be partial or delayed, depending on your pay cycle.
3. 3Remind employees to review their W-4 after life events such as marriage or a second job.
4. 4Label pre-tax deductions clearly on the stub, so people can see which ones lowered their taxable wages.
5. 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. To build a gross-to-net breakdown for one employee, use the payroll gross-to-net worksheet.

Frequently asked questions about gross pay vs net pay