Updated 2026-08-29
Net pay vs. gross pay: the core difference
Gross pay is your total compensation before anything is removed. Net pay is what remains after every deduction. The gap between the two is made up of taxes and benefit contributions.
| Gross pay | Net pay |
|---|---|
| Total earnings before deductions | Amount deposited after all deductions |
| Top line of your pay stub | Bottom line of your pay stub |
| The number on your offer letter | The number in your bank account |
| Always larger | Always smaller |
Both figures appear on every pay stub. Your W-2 at year-end reports several versions of gross (Boxes 1, 3, and 5), which differ because some deductions are excluded from each tax base.
Box 1 shows wages after pre-tax 401(k) and cafeteria-plan deductions, so it is usually the smallest. Boxes 3 and 5 add the retirement dollars back, because 401(k) contributions are still subject to Social Security and Medicare tax. Seeing three different gross figures on one form is normal, not an error.
The net pay formula step by step
Every payroll system follows the same sequence:
- Start with gross pay. For salaried workers this is annual salary divided by the number of pay periods. For hourly workers it is hours worked times the hourly rate, plus any overtime.
- Subtract pre-tax deductions. Traditional 401(k), Section 125 health-insurance premiums, HSA, and FSA contributions. These lower your taxable wages.
- Calculate taxes on what remains. Federal income tax per your W-4 and IRS withholding tables; Social Security at 6.2% on wages up to the annual wage base of $184,500 in 2026; Medicare at 1.45% on all wages, plus an extra 0.9% on wages over $200,000; and any state or local income tax.
- Subtract post-tax deductions. Roth 401(k), union dues, garnishments, voluntary life insurance.
- The result is net pay.
Social Security and Medicare together are called FICA and total 7.65% of wages up to the wage base.
Worked example: $75,000 salary, single filer
Assume a single filer earning $75,000 a year, paid biweekly across 26 periods, contributing 5% to a traditional 401(k), living in a state with no income tax:
- Gross per paycheck: $75,000 / 26 = $2,884.62
- Pre-tax 401(k) at 5%: -$144.23
- Taxable wages: $2,740.39
- Federal income tax (estimate): roughly -$280
- Social Security (6.2% of gross): -$178.85
- Medicare (1.45% of gross): -$41.83
- Net pay: roughly $2,240 per paycheck
That is about 77.6% of gross. Adding a state income tax would reduce net pay further. Use the paycheck calculator for an exact figure with your own inputs, since state rates vary; check your state calculator for local tax.
On the topic of raises, only the portion of income above your current bracket is taxed at the higher rate, so a $5,000 raise never shrinks your take-home. The common belief that a raise can push all your income into a higher bracket and leave you with less is not how marginal rates work.
What deductions reduce net pay the most
For most workers the largest deduction is federal income tax, followed by FICA at 7.65% of wages. Together these mandatory items typically consume 20 to 30 percent of gross pay before any voluntary deductions.
Among voluntary deductions, health-insurance premiums and retirement contributions have the biggest impact. A 10% 401(k) contribution on a $60,000 salary reduces gross-to-net by $6,000 a year, though the tax savings on pre-tax contributions soften the blow. Net pay appears at the bottom of the earnings section of your stub, usually labeled Net Pay, next to a year-to-date column. The bank deposit should match that figure exactly. See our pre-tax vs. post-tax guide for the full breakdown.
Court-ordered garnishments for child support, unpaid taxes, or defaulted student loans are another large reducer, and federal limits cap how much can be taken from a single paycheck. If the deposit in your account does not match the net-pay line on your stub, check whether pay was split across two accounts or a post-payroll adjustment was applied.
Common mistakes and edge cases
Net pay trips people up in predictable ways:
- Budgeting off gross. Rent and savings come out of net, not the salary on your offer letter. Always plan around take-home.
- Assuming net is a fixed percentage. Your share of gross shifts with bracket, state, and benefit choices, so a coworker on the same salary can have a different net.
- Forgetting FICA resets each January. Social Security withholding restarts every year until you again reach the wage base.
Edge cases that move net pay:
- Reaching the Social Security wage base ($184,500 in 2026): once your year-to-date wages pass it, the 6.2% stops and your net pay rises for the rest of the year.
- High earners: wages over $200,000 pick up the extra 0.9% Medicare surtax, trimming net pay.
- Bonuses: supplemental wages are often withheld at the flat federal supplemental rate of 22%, so a bonus check can show a smaller net percentage than a regular one.
- Working in one state and living in another: both may claim withholding, so your net can look smaller until you reconcile the credit at tax time.
When several of these hit the same check, net pay can swing noticeably even though your salary never moved.
How to increase your net pay
Without changing your salary, you can raise net pay by adjusting your withholding and benefit elections:
- Review your W-4. A consistently large refund can mean you are over-withholding. Adjusting your W-4 puts more in each paycheck. Check with the withholding calculator.
- Maximize pre-tax benefits. HSA and FSA contributions reduce both income tax and FICA, a double benefit that leaves more in your check than paying the same expenses after tax.
- Audit your elections at open enrollment. Drop coverage you no longer use.
Be cautious about cutting withholding too far. If you owe more than $1,000 at filing time, the IRS may assess an underpayment penalty. For a term-by-term walkthrough, see the paycheck deductions guide.
This guide is for informational purposes and does not constitute tax, legal, or financial advice.
Frequently asked questions
Is net pay the same as take-home pay?
Yes. Net pay and take-home pay are interchangeable terms. Both refer to the amount deposited in your account after all taxes and deductions are subtracted from gross earnings.
What percentage of gross pay is net pay?
Typically 70 to 80 percent for most US workers. The exact figure depends on your tax bracket, filing status, state of residence, and pre-tax benefit elections. Workers in high-tax states or high-income brackets keep a smaller share.
Why is my net pay different each paycheck?
Common causes include a change in hours (for hourly workers), a mid-year W-4 update, a benefit-premium change at open enrollment, a bonus or commission, or reaching the Social Security wage base, after which the 6.2% withholding stops for the rest of the year.
Does net pay include retirement contributions?
No, the money is redirected before you receive it. Pre-tax 401(k) contributions are subtracted before net pay is calculated; Roth 401(k) contributions are subtracted after taxes. Either way the money goes into your retirement account, not your bank account, so both reduce net pay.
How do I calculate net pay from an hourly rate?
Multiply your hourly rate by hours worked to get gross for the period. Then subtract pre-tax deductions, federal and state income tax, Social Security (6.2%), Medicare (1.45%), and any post-tax deductions. The remainder is your net pay.