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

6 min read · Updated 2026-06-27

"I make $75,000 a year." That number — your gross pay — is the one you negotiate, put on loan applications, and compare between job offers. But it's not the money you live on. The amount that reaches your bank account is your net pay, and it can be thousands of dollars lower per year. Understanding the difference is the single most useful thing you can learn about your paycheck.

Gross pay, defined

Gross pay is your total compensation before any deductions. For a salaried employee it's the annual salary divided by the number of pay periods. For an hourly worker it's hours worked times the hourly rate, plus overtime, bonuses, tips, and commissions. It's the largest number on your pay stub and the basis for every tax calculation.

Net pay, defined

Net pay — also called take-home pay — is what remains after everything is subtracted from gross pay. The deductions fall into two groups:

• Mandatory taxes: federal income tax, Social Security and Medicare (FICA), and state/local income tax.
• Voluntary deductions: retirement contributions (401(k)), health-insurance premiums, HSA/FSA contributions, and similar benefits.

Why the gap exists — and why it's bigger than people expect

The gap between gross and net is the sum of all those deductions. FICA alone is 7.65%. Federal income tax adds a variable amount depending on your bracket. State tax can add anywhere from 0% to over 10%. Stack them up and a worker earning $75,000 might keep only $56,000–$60,000 — a difference of $15,000 or more a year.

A side-by-side example

Consider a single filer earning $75,000 in a state with no income tax:

• Gross pay: $75,000
• − Federal income tax: about $8,300
• − Social Security (6.2%): $4,650
• − Medicare (1.45%): $1,088
• Net pay: roughly $60,962 (about 81% of gross)

Move that same person to a state with a 5% flat income tax and their net pay drops by roughly another $3,000. Location matters — which is why we let you choose your state in the calculator.

Why this matters for budgeting

Budgeting off gross pay is the classic personal-finance mistake. Rent, loan payments, and savings goals all have to come out of net pay. A good rule of thumb is to base your budget on take-home pay and treat any tax refund as a bonus, not income you can count on.

Estimate your own net pay

The simplest way to know your real take-home pay is to run your salary, filing status, and state through our calculator. It shows gross pay, the exact amount of each tax, and your net pay per paycheck and per year. If you want to understand the mechanics first, start with how paycheck taxes work.