Tax & income
Gross pay vs. net pay: Definition, Formula and Example
Gross pay is earnings before paycheck deductions; net pay is the amount remaining after the deductions applied to that paycheck.
Scope: Paycheck concept; linked tax tools use their explicitly labeled U.S. tax years and assumptions.
Other names and related labels: Take-home pay; Paycheck deductions.
How it works
Deductions can include income-tax withholding, payroll taxes, retirement deferrals and insurance. Pretax and after-tax items can affect different tax bases. Annual salary, pay frequency and taxable wages are related but not interchangeable.
Net pay = gross pay − employee deductions − withheld taxes
Use the same pay period and avoid deducting an item twice. Employer-paid benefits are not automatically employee paycheck deductions.
A $2,000 gross paycheck
Assume $300 tax withholding, $100 retirement deferral and $80 insurance deduction.
- Total deductions: $300 + $100 + $80 = $480.
- Net pay: $2,000 − $480 = $1,520.
The illustrated take-home amount is $1,520.
Deductions are given final amounts; this example does not calculate their tax treatment or final annual tax.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
Withholding and final tax liability are different
A refund can result when payments and refundable credits exceed the annual liability. Also, biweekly pay usually has 26 periods per year, whereas twice-monthly pay has 24; they are not the same frequency.
Explore with a calculator
- Salary Calculator
Convert salary and pay frequency using explicit work-time assumptions.
- Take-Home-Paycheck Calculator
Estimate supported withholding and paycheck deductions.
- Budget Calculator
Base a cash budget on consistent take-home income assumptions.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
Calculation methodology and review status · All glossary terms