Gross pay vs net pay: the difference, with a worked example

What is gross pay?

Gross pay is your total earnings for the pay period before any withholding. For an hourly employee it is the hours worked times the hourly rate, plus overtime. For a salaried employee it is the yearly salary split evenly across the pay periods in the year, for example 26 parts for biweekly pay.

Gross pay also includes bonuses, commissions and tips reported to the employer, which are wages for withholding purposes (IRS Publication 15). So are taxable fringe benefits, for example an employer’s car that you also drive on personal trips (IRS Publication 15-B).

Overtime counts too. The Fair Labor Standards Act sets the floor: a non-exempt employee earns at least time and a half for each hour past 40 in one workweek, and the extra pay is part of gross pay. Weeks with a bonus or two pay rates change the math, worked out step by step in how to calculate overtime pay.

How much is gross pay per paycheck?

Divide the annual salary by the number of pay periods in the year. For a $60,000 salary, gross pay per paycheck is shown below; to see the same salary as an hourly rate, use salary to hourly.

Net pay per paycheck is lower and depends on your state, W-4 and deductions, so no single table fits everyone. Enter your own details in the pay stub generator to see both figures.

What is net pay?

Net pay is gross pay after every tax and deduction has come out. It is the figure printed on the check or sent by direct deposit, so it is the number to budget with. On a correct pay stub, net pay matches the payment to the cent.

What comes out between gross pay and net pay?

Deductions come out in a set order, because some of them change the wages that later taxes are worked out on.

1. Pre-tax deductions. Traditional 401(k) deferrals and Section 125 benefits such as health premiums come out first. They lower the wages that income tax is calculated on.
2. Federal income tax. Withheld from the IRS tables in Publication 15-T, using the employee’s Form W-4 and pay frequency. Stubs often label it FIT; see what FIT means on a pay stub.
3. Social Security. 6.20% of Social Security wages, up to the 2026 wage base of $184,500.
4. Medicare. 1.45% of Medicare wages with no cap, plus an extra 0.9% on wages over $200,000 in the year.
5. State and local income tax. Depends on where you work and live. Some states do not tax wages at all.
6. After-tax deductions. Roth 401(k) contributions, union dues, wage garnishments and similar items come out last, from pay that has already been taxed.

Social Security and Medicare together are often shown as FICA. The rates and the wage base are set each year by the IRS and the Social Security Administration (IRS Topic 751, SSA contribution and benefit base).

Gross pay vs net pay: an example

Take a service technician in Tulsa, Oklahoma, paid $24 an hour every two weeks. This period they worked 80 regular hours and 5 overtime hours at $36, time and a half. Gross pay is $1,920 plus $180, or $2,100. They save 4% in a traditional 401(k).

The stub below was calculated by our generator from the 2026 tables. Read it top to bottom: gross pay, then each tax, then the two deductions, then net pay.

Out of $2,100 gross, the technician takes home $1,727.11, a little over four fifths; the chart shows where the rest went. A salaried stub with a health premium is among the pay stub examples.

Gross pay and net pay side by side

How do I calculate net pay from gross pay?

1. Work out gross pay: hours times rate plus overtime, or salary divided by pay periods, plus any bonus or commission.
2. Subtract pre-tax deductions to get the wages for income tax.
3. Work out federal income tax from those wages with the Publication 15-T tables.
4. Work out Social Security and Medicare on their own wage bases.
5. Work out state and local income tax, if any.
6. Subtract all taxes and all deductions from gross pay. The result is net pay.

Our guide to preparing a check stub follows the same steps for a salaried employee in Ohio.

Why taxable wages are not the same as gross pay

Pre-tax deductions do not all work the same way. A traditional 401(k) deferral lowers the wages for federal income tax, and for state income tax in most states, but not the wages for Social Security and Medicare. A health premium paid through a cafeteria plan comes off before all of those taxes.

That is why the example has two wage figures from one $2,100 gross: $2,016 for income tax and the full $2,100 for Social Security and Medicare.

The same gap is why box 1 of your W-2 is often lower than your total gross pay for the year, while boxes 3 and 5 can be higher than box 1.

Which number goes where?

• Job offers and salary quotes are gross. A $72,000 salary is gross pay for the year.
• Your bank deposit is net pay.
• Your W-2 shows taxable wages, not gross: box 1 for income tax, box 3 for Social Security and box 5 for Medicare.
• Year-to-date totals on a stub show both gross and net since January 1. Our YTD guide explains that column, and the paycheck taxes guides cover each tax line.

Gross pay and net pay for 1099 contractors

An independent contractor usually has no tax withheld, so the payment is both gross and net. The exception is backup withholding, when the contractor has not given the payer a correct taxpayer ID. The contractor pays income tax and self-employment tax on their own, usually through quarterly estimated payments (IRS self-employment tax).

A 1099 earnings statement records the payment and can note an amount set aside for tax, without treating it as a deduction.

See gross and net pay for your own figures