When you hear about a job’s gross salary, it sounds like that’s what you’ll take home. But in reality, your net pay—the money that actually hits your bank account—is lower. The difference comes from taxes and deductions. Understanding this gap helps you plan your budget, check your pay stub, and avoid surprises on payday.
Gross Salary vs. Net Pay
- Gross salary: The total pay your employer promises before taxes or deductions.
- Net pay: The actual “take-home pay” you receive after everything is withheld.
Think of gross as the headline number and net as the realistic number you can spend.
How to Get Net Pay from Gross Salary
Here’s a simple way to break it down:
- Start with gross salary – either annual, monthly, or hourly pay.
- Subtract pre-tax deductions – like health insurance premiums, retirement plan contributions, or commuter benefits.
- Take out federal income tax – based on IRS tax brackets, your W-4 form, and filing status.
- Subtract FICA taxes – this includes Social Security (6.2%) and Medicare (1.45%) on most wages.
- Subtract state and local taxes – varies by where you live and work. Some states have flat rates, others have brackets.
- Apply post-tax deductions – union dues, Roth IRA contributions, or wage garnishments.
- The result = your net pay – the paycheck you can actually use.
Example: From Gross to Net
Imagine you earn $60,000 a year (gross). Here’s how it might break down:
| Category | Amount Deducted | Running Total |
|---|---|---|
| Gross Salary | – | $60,000 |
| Pre-Tax Benefits (401k, etc.) | -$5,000 | $55,000 |
| Federal Income Tax | -$7,200 | $47,800 |
| FICA (Social Security + Medicare) | -$4,590 | $43,210 |
| State Income Tax (5%) | -$2,750 | $40,460 |
| Net Pay | – | $40,460 |
That’s almost a $20,000 difference between gross and net—showing why it’s so important to understand your deductions.
Why Your Net Pay Might Look Different
- State differences: Someone in Texas (no state income tax) keeps more than someone in New York or California.
- Benefit choices: Contributing more to retirement or health insurance lowers your net.
- Tax withholding choices: Updating your W-4 or state form changes how much is withheld each check.
Quick Tips to Maximize Net Pay
- Review your W-4 and state withholding after big life events.
- Use pre-tax benefits like 401(k) contributions or health savings accounts.
- Check your pay stubs regularly to make sure deductions are correct.
FAQs
1. What’s the formula for net pay?
Net pay = Gross salary – (taxes + deductions).
2. Are bonuses included in gross salary?
Yes, but they’re often taxed differently as supplemental income.
3. Why is my coworker’s net pay different if we earn the same salary?
Differences in state taxes, benefits, or withholding elections can change take-home pay.
4. Can I estimate my net pay myself?
Yes—by applying tax brackets and deduction rules, or by using a paycheck calculator.
Bettye is the creator of CityPaycheckCalculator.com, a resource designed to help individuals quickly and accurately estimate their take-home pay across U.S. cities. With a strong focus on clarity, accuracy, and user experience, Bettye provides reliable paycheck calculators and helpful insights to support smarter financial decisions. Her mission is to make complex payroll and tax information simple and accessible for everyone.