Gross Pay vs Net Pay: What’s the Difference?

Gross pay is the salary you’re offered and agree to — the big number on your contract. Net pay is what actually lands in your bank account after everything is taken out. The difference between the two is the single most common surprise on a first paycheck, and it’s usually larger than people expect.

What is gross pay?

Gross pay is your total earnings before any deductions: your base salary, plus any overtime, bonuses or commissions. If your offer letter says $60,000 a year, that’s your annual gross. Divided across 12 months, your gross monthly pay is $5,000 — but that’s not what you’ll receive.

What is net pay?

Net pay — also called “take-home pay” — is what’s left after all deductions. For a typical US employee, the gap between gross and net is made up of:

• Federal income tax — withheld based on your W-4 and the tax brackets.
• FICA — 7.65% for Social Security and Medicare (see FICA explained).
• State (and sometimes local) income tax — depends entirely on where you live.
• Pre-tax deductions — like a 401(k) or health premiums, which also lower your tax.
• After-tax deductions — such as a Roth 401(k) or certain insurance.

A quick example

On a $60,000 salary for a single filer in a no-tax state, federal income tax is around $4,900 and FICA is $4,590, leaving net pay of about $50,500 a year — roughly $4,200 a month, not the $5,000 that salary ÷ 12 suggests. Add a state income tax or a 401(k) contribution and the monthly deposit shifts again.

Why it matters

Budgets should be built on net pay, not gross — rent, bills and savings all come out of what you actually receive. It also matters when comparing job offers: a higher gross in a high-tax state can mean a lower net than a smaller offer somewhere with no income tax. That’s the whole point of evaluating an offer on after-tax terms.

See your gross-to-net gap

Enter any salary and your state in our calculator to see your exact net pay and a line-by-line breakdown of everything between gross and net. To dig into a single paycheck, read how to read your pay stub.