Gross pay vs net pay
Last updated: 2026-08-14
Gross pay is the number in the offer letter. Net pay is the number in the bank account. Everything interesting sits between them.
Gross pay is total earnings for a pay period before anything is taken out: salary or hourly wages, plus overtime, bonuses, commission, and tips. Net pay is what is left once payroll taxes, income tax withholding, and benefit deductions have come out. It is the only figure you can actually spend.
What sits between the two
Four kinds of deduction do nearly all the work:
- Payroll taxes. Social Security at 6.2% up to a $184,500 wage ceiling for 2026, and Medicare at 1.45% with no ceiling.
- Income tax withholding. Federal, plus state and local where they apply. This is the largest and least predictable line.
- Pre-tax deductions. Traditional 401(k), HSA, FSA, and cafeteria-plan health premiums, which reduce taxable wages before tax is calculated.
- Post-tax deductions. Roth 401(k), wage garnishments, union dues, and anything else taken after tax has been worked out.
The order matters, because pre-tax deductions shrink the wages that tax is calculated on. How to calculate take-home pay works through the full sequence with a real paycheck.
Three people, one salary, three different paychecks
All three below earn $100,000, file as single, are paid biweekly, and have no pre-tax deductions. Gross pay is $3,846.15 for every one of them.
| Situation | Federal | State | Net pay |
|---|---|---|---|
| Works in Texas | $506.54 | $0.00 | $3,045.38 |
| Works in Illinois | $506.54 | $190.38 | $2,855.00 |
| Texas, second job declared on the W-4 | $706.42 | $0.00 | $2,845.50 |
Same salary, same filing status, and a $199.88 spread between the top and bottom row. Over a year that is roughly $5,200 on identical gross pay.
This is why comparing two job offers on salary alone is unreliable. A $100,000 offer in a state with no income tax is not the same money as a $100,000 offer in one that taxes at 5%, and neither is comparable to an offer with a stronger employer benefit package.
Which number to use, and when
People default to net pay because it feels like the honest figure. Lenders do the opposite.
Use gross pay when a lender or landlord asks what you earn. Mortgage qualification, debt-to-income ratios, and most rental affordability rules are all built on gross monthly income. Quote net pay on a mortgage application and you will understate yourself badly.
Use net pay for anything you actually budget: rent, groceries, loan payments, savings. A budget built on gross pay is a budget that overspends by roughly a fifth.
Both matter in the same decision. A lender may approve a payment your net pay cannot comfortably carry, which is the gap the debt-to-income calculator and the home affordability calculator are built to show.
Finding both on a paystub
A paystub usually shows two columns: the current pay period and year to date. Gross pay sits at the top, deductions are itemised beneath it, and net pay is the figure at the bottom, often labelled "net pay" or "take-home".
The year-to-date column is the more useful of the two. It is what reveals whether withholding is tracking toward a refund or a bill, and it is the only place a Social Security wage ceiling or a mid-year raise becomes visible.
If the deductions on your stub do not match what you expected, the paystub checker compares a real stub line by line against the modelled figures.
Estimate your own
The take-home pay calculator shows gross and estimated net side by side. For an annual salary, the salary paycheck calculator is the quicker starting point, and the paycheck comparison calculator puts two offers next to each other on net rather than gross.
Related reading: how to calculate take-home pay and salary vs hourly paychecks.
Common questions
Which figure do lenders use?
Almost always gross. Mortgage and loan affordability rules are written against gross income, which is why a debt-to-income ratio can look comfortable on paper while the monthly budget feels tight. Plan your own budget against net.
Do pre-tax deductions reduce Social Security and Medicare too?
It depends on the deduction. A 401(k) contribution reduces income tax but not Social Security or Medicare. A Section 125 health premium or an HSA contribution reduces all three. That difference is why two deductions of the same size can change your take-home by different amounts.
What is imputed income on my payslip?
It is the taxable value of a benefit you received without cash, such as employer-paid group life cover above the exempt limit or personal use of a company car. It raises taxable wages without raising gross cash, so it lowers net pay.
Why do two colleagues on the same salary take home different amounts?
Filing status, dependents, benefit elections, retirement contribution rates and state of work all move the number. Two people on identical gross pay can differ by hundreds of dollars a paycheck without anything being wrong.
Related reading
The rest of this series, and the calculators that let you run the idea on your own numbers.
More paycheck guides
Try it with your figures
See also all guides, every calculator, and the calculation methodology behind these estimates.