Gross pay is the full amount your employer owes you for a pay period; net pay is what’s left after taxes and other deductions come out and hit your bank account. The gap between gross pay and net pay usually runs somewhere between a quarter and a third of the total, and knowing exactly what fills that gap is the difference between a budget that works and one that doesn’t.
What Gross Pay Actually Is
Gross pay is every dollar you earn in a pay period before anything is subtracted. For salaried workers, it’s your annual salary divided by the number of pay periods in the year. For hourly workers, it’s your rate multiplied by the hours you worked.
It also includes anything you earned on top of your base. Overtime counts: federal law requires covered employers to pay at least 1.5 times your regular rate for hours beyond 40 in a workweek.1Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours Commissions, shift differentials, and bonuses all fold in too. If you earned it during the pay period, it’s part of your gross.
One quirk to know before you compare your W-2 to your offer letter: Box 1 shows taxable wages after traditional 401(k) contributions have already been subtracted, so it won’t match your full gross pay if you contribute to a retirement plan.2Internal Revenue Service. General Instructions for Forms W-2 and W-3
Where the Money Goes Between Gross and Net
Every paycheck moves through the same sequence: pre-tax deductions come out first, then taxes are calculated on what’s left, then post-tax deductions come out at the end. That order matters, because pre-tax items shrink your tax bill while post-tax items don’t.
Mandatory Payroll Taxes
Your employer is legally required to withhold certain taxes and send them to the government for you.3Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide The main ones:
- Social Security tax: 6.2% of your wages, up to $184,500 in 2026. Once your annual earnings hit that cap, the tax stops for the rest of the year.4Social Security Administration. Contribution and Benefit Base
- Medicare tax: 1.45% of all your wages, with no cap.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
- Federal income tax: withheld based on what you put on your Form W-4, including your filing status and any credits or adjustments you claimed.6Internal Revenue Service. Form W-4 – Employees Withholding Certificate
- State and local income taxes: nine states have no state income tax, and rates in the rest vary widely. Some cities and counties add local taxes on top.
Between Social Security and Medicare alone, 7.65% of every dollar you earn is withheld (up to the Social Security cap). Your employer pays a matching 7.65%, but that share doesn’t come out of your check.
Pre-Tax Deductions
Pre-tax deductions come out of your gross pay before income tax is calculated, so they reduce the wages you owe tax on. The common ones are traditional 401(k) or 403(b) contributions, health insurance premiums paid through your employer’s plan, and contributions to an HSA or FSA.7Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
Not every pre-tax deduction saves the same amount of tax. Traditional 401(k) contributions reduce federal income tax but not Social Security or Medicare tax. Health insurance premiums paid through a Section 125 cafeteria plan reduce both, so a dollar routed there stretches a bit further.
The practical effect: a $200 pre-tax 401(k) contribution doesn’t shrink your take-home pay by a full $200, because your tax withholding drops at the same time. The real hit is closer to $150 to $170 for most people, depending on the bracket you’re in.
The 2026 contribution limits worth knowing:
- 401(k), 403(b), and similar plans: $24,500. Age 50 and up adds an $8,000 catch-up, for $32,500. Workers 60 through 63 get an $11,250 catch-up, for $35,750.8Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- HSA: $4,400 for individual coverage, $8,750 for family coverage.9Internal Revenue Service. IRS Notice 26-05 – HSA Limits for 2026
- FSA: $3,400. Unlike an HSA, an FSA generally follows a use-it-or-lose-it rule.
Post-Tax Deductions
Post-tax deductions come out after taxes have already been withheld, so they lower your paycheck without lowering your tax bill. Roth 401(k) contributions belong here, along with union dues, charitable payroll deductions, and most wage garnishments. With Roth, you’re paying tax now in exchange for tax-free withdrawals in retirement.
Garnishments are a special case of post-tax withholding. If a court, tax agency, or child support order requires it, your employer must divert part of your pay to the creditor. Federal law caps garnishments for ordinary consumer debts at the lesser of 25% of your disposable earnings or the amount by which your weekly disposable earnings exceed 30 times the federal minimum wage.10Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment Child support, federal tax levies, and bankruptcy orders can claim a larger share.
A Worked Example on a $60,000 Salary
Here’s the math in the order payroll actually runs it. Assume a $60,000 annual salary, biweekly pay, single filer, a 6% traditional 401(k) contribution, and $100 per paycheck toward health insurance.
Gross pay per paycheck: $60,000 ÷ 26 = $2,307.69
Pre-tax deductions:
- 401(k) at 6%: −$138.46
- Health insurance premium: −$100.00
FICA taxes (calculated on gross, though cafeteria-plan health premiums reduce FICA wages):
- Social Security, 6.2%: −$143.085Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
- Medicare, 1.45%: −$33.46
Federal income tax withholding: your employer plugs your W-4 into the IRS withholding tables. For a single filer in this scenario, most of the income falls in the 10%, 12%, and 22% brackets under the 2026 schedule.11Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Estimated withholding per paycheck: roughly −$190, though it moves with your W-4 selections.12Internal Revenue Service. Tax Withholding
State income tax: roughly −$60 to −$100 in most states. Zero in a no-income-tax state.
Post-tax deductions: anything like Roth contributions, garnishments, or union dues comes out last.
Net paycheck: total deductions run roughly $665 to $705, leaving take-home of about $1,600 to $1,640. Over a year, that’s roughly $42,000 to $43,000 from a $60,000 salary. The gap between gross and net comes in around 29% to 30%.
Your own numbers will move with your state, your bracket, and the benefits you’ve elected. The process doesn’t change: start with gross, subtract pre-tax deductions, calculate taxes on what’s left, subtract post-tax deductions.
Why the Same Salary Produces Different-Sized Checks
Pay frequency changes the per-check number even when the annual salary is identical. Biweekly pay splits your salary across 26 checks a year. Semimonthly pay uses 24. Monthly pay means 12 larger checks. The yearly total is the same, but the timing and size are not.
Biweekly schedules also create two months a year where you get three paychecks instead of two. If your rent and loan payments are built around two checks a month, those third-check months look like a bonus. Semimonthly avoids that quirk because you always get two checks a month, each one slightly larger than a biweekly check would be.
The comparison trap: a $2,500 biweekly paycheck is $65,000 a year (26 × $2,500), while a $2,500 semimonthly paycheck is $60,000 (24 × $2,500). Same headline number, $5,000 difference in annual gross. When you compare offers, convert everything to the same frequency first.
Reading Your Pay Stub and Adjusting Withholding
Your pay stub accounts for every dollar between gross and net. Most stubs show a current-period column and a year-to-date column. Check the year-to-date figures at least quarterly. They’ll tell you whether you’re on pace to max out a 401(k), whether you’re approaching the Social Security wage cap, and whether your federal withholding looks reasonable against what you expect to owe.
If withholding looks off in either direction, you can submit a new W-4 to your employer at any point in the year to change it.6Internal Revenue Service. Form W-4 – Employees Withholding Certificate You don’t need to wait for January. Marriage, buying a home, or a new child are all good reasons to refresh it so your withholding tracks your actual tax picture. Overwithholding hands the IRS an interest-free loan until you file. Underwithholding can produce a surprise bill and possible penalties.12Internal Revenue Service. Tax Withholding