🧾 Gross Pay vs Net Pay
Gross pay is what your employer agrees to pay you. Net pay — your 'take-home' — is what actually lands in your bank account after taxes and deductions. The gap between the two surprises many workers: on a $60,000 salary, you might take home only $46,000–$50,000 depending on your state and benefits elections. This guide explains exactly what gets deducted, why, and how to calculate your real take-home pay.
What is Gross Pay?
Gross pay is your total earnings before any deductions. For salaried workers, it is your annual salary divided by the number of pay periods. For hourly workers, it is your hourly rate multiplied by hours worked, including any overtime.
| $60,000 salaried, bi-weekly (26 pays) | $2,307.69/paycheck gross |
| $25/hour, 40 hours/week | $1,000/week gross |
| $25/hour, 45 hours (5 hrs OT at 1.5x) | $1,187.50/week gross |
What is Net Pay?
Net pay (take-home pay) is what remains after all deductions are subtracted from gross pay. Deductions fall into two categories:
- Mandatory deductions: Federal income tax, state income tax, Social Security (6.2%), Medicare (1.45%)
- Voluntary deductions: 401(k) contributions, health insurance premiums, HSA/FSA contributions, life insurance, dental/vision
Step-by-Step: How Net Pay is Calculated
Start with Gross Pay
Your total earnings before anything is deducted. For a $60,000 salary paid bi-weekly: $2,307.69/paycheck.
Subtract Pre-Tax Deductions
401(k), HSA, and health insurance premiums are deducted before taxes are calculated — reducing your taxable income. Example: $500/month 401(k) = $6,000/year less in taxable income.
Calculate Federal Income Tax
Applied to taxable income (gross minus pre-tax deductions minus standard deduction). Uses graduated brackets — 10%, 12%, 22%, 24%, 32%, 35%, 37%.
Subtract FICA Taxes
Social Security: 6.2% on wages up to $184,500. Medicare: 1.45% on all wages. Combined: 7.65% employee share.
Subtract State & Local Taxes
Varies by state — 0% in TX/FL/WA to 13.3% in California. Some cities add local income tax (NYC: 3.08–3.88%).
Subtract Post-Tax Deductions
Roth 401(k) contributions, some insurance types, and wage garnishments come out after taxes.
| Gross annual salary | $60,000 |
| 401(k) contribution (6%) | -$3,600 |
| Health insurance premium | -$2,400 |
| Taxable income | $54,000 |
| Standard deduction | -$15,000 |
| Federal income tax (est.) | -$5,190 |
| Social Security (6.2%) | -$3,720 |
| Medicare (1.45%) | -$870 |
| Annual net pay (take-home) | $44,220 |
| Monthly take-home | $3,685 |
How Pre-Tax Deductions Reduce Your Tax Bill
One of the most powerful ways to increase net pay is to maximize pre-tax deductions. Every dollar contributed to a traditional 401(k) or HSA reduces your taxable income dollar-for-dollar:
| $5,000 401(k) contribution | Saves ~$1,100 in federal tax + FICA |
| $3,000 HSA contribution | Saves ~$660 in federal tax + FICA |
| $3,000 health insurance premium | Saves ~$660 in federal tax + FICA |
| Max 401(k) ($24,500) + HSA ($4,400) | Saves ~$6,100+ in federal tax + FICA |