Gross Pay vs Net Pay: What Sits Between Them
The stack, in order
A pay stub is a subtraction performed in a specific sequence, and the sequence matters because each step changes what the next step applies to.
| Step | Line | Example |
|---|---|---|
| 1 | Gross pay — wages, overtime, bonuses | $2,307.69 |
| 2 | Minus pre-tax deductions (401k, premiums, HSA) | −$138.46 |
| 3 | = Taxable wages for income tax | $2,169.23 |
| 4 | Minus federal income tax withholding | −$238.62 |
| 5 | Minus state and local income tax | −$86.77 |
| 6 | Minus FICA, on gross rather than taxable wages | −$176.54 |
| 7 | Minus post-tax deductions (Roth, union dues, garnishments) | −$0.00 |
| 8 | = Net pay, the deposit | $1,667.31 |
Each line is rounded to the cent, so the column sums a penny below the true figure of $1,667.31 — exactly the sort of rounding difference a real stub shows against a spreadsheet.
That column is one biweekly check on a $60,000 salary with $3,600 a year of pre-tax deductions, an 11% effective federal rate and 4% state — the same worked example the take-home pay calculator uses.
Gross pay is the number everyone quotes
Job offers, salary surveys, loan applications and W-2 box 1 all speak in gross. It is the right common language, because net depends on personal choices — how much you put in a 401(k), which health plan you picked, which state you live in — that have nothing to do with the job's value.
It also means the number you negotiate is never the number you receive, and the gap is larger than most people first assume.
How big is the gap?
For a typical American employee, net pay lands somewhere around 70 to 80 percent of gross. The spread inside that range comes from three things, in roughly this order of importance:
- Where you live. State income tax runs from zero in a handful of states to over 10% at the top of the scale in others.
- What you elect. A large 401(k) contribution can make net pay look small while doing nothing bad to your finances — that money is yours, just not liquid.
- Your income level. Effective federal rates climb with income, though far more slowly than bracket headlines imply.
Two lines people misread
FICA is charged on gross, not on taxable wages. Notice in the table that step 6 goes back to the gross figure. A traditional 401(k) contribution reduces income tax but not Social Security and Medicare, which is why the FICA line does not shrink when you increase your contribution.
Employer contributions are not on your stub in the deductions column, and should not be. The employer's matching half of FICA and its share of your health premium are real compensation, but they never pass through your gross pay, so they cannot be subtracted from it.
Reading your own stub against an estimate
- Start from the year-to-date column rather than a single check. It smooths out bonuses, overtime and mid-year changes.
- Compute your own effective rate: year-to-date federal tax divided by year-to-date gross. That single number predicts future checks better than any bracket table.
- Compare it against last year's return. A large gap between what is being withheld and what you actually owed is the signal to revisit your W-4 — in either direction, since a large refund is an interest-free loan you made.
A planning estimate of what each paycheck deposits, built from rates you supply — your effective federal and state rates from last year’s return, not a baked-in tax table that goes stale every January.
Frequently asked questions
What is the difference between gross pay and net pay?
Gross pay is total earnings before any deduction. Net pay is what remains after pre-tax deductions, income tax, FICA and post-tax deductions, and it is the amount actually deposited.
What percentage of gross pay is take-home pay?
Typically 70 to 80 percent for an American employee. The main variables are state income tax, how much you elect into pre-tax benefits and your income level.
Does a 401(k) contribution reduce my FICA taxes?
No. Traditional 401(k) money avoids income tax now but Social Security and Medicare are still charged on the full gross. Health premiums through a workplace cafeteria plan typically avoid both.
Which figure appears on a W-2?
Several do. Box 1 is wages after pre-tax deductions that avoid income tax, while the Social Security and Medicare wage boxes are computed differently, which is why they rarely match each other.
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