Gross pay is the full amount your employer pays you for your work in a pay period before any taxes, insurance premiums, retirement contributions, or other deductions are taken out. If your salary is $60,000 a year, that $60,000 is your annual gross pay, even though your bank deposits will add up to less. Gross pay is the starting number for federal income tax withholding, Social Security and Medicare contributions, and every other line on your pay stub, so knowing how it is built helps you check that each paycheck is right.
How to Calculate Your Gross Pay
The math depends on how you are paid.
If you are salaried, divide your annual salary by the number of pay periods in the year. A $60,000 salary paid biweekly (26 pay periods) works out to roughly $2,307.69 in gross pay per check. The same salary paid semimonthly (24 pay periods) produces $2,500 per check.
If you are hourly, multiply your hourly rate by the hours worked in the pay period. At $20 an hour for 40 hours, gross pay for that week is $800. Overtime premiums, bonuses, commissions, and tips are added on top of that base to get your total gross pay for the period.
What Gross Pay Includes
Gross pay is more than your base wage. It covers overtime premiums, non-discretionary bonuses, commissions, tips, shift differentials, and some fringe benefits. Federal tax law defines gross income broadly as income from all sources, including compensation for services, fees, commissions, and fringe benefits.1Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined The IRS requires that all wages, salaries, and tips you receive as an employee be included in your gross income.2Internal Revenue Service. Topic No. 401, Wages and Salaries
Tips and commissions count. If you work in a restaurant, hotel, or salon, the tips you receive are part of your gross wages for tax purposes. Sales commissions are included whether they are your only pay or an add-on to a base salary.3eCFR. 29 CFR Part 778 – Overtime Compensation
Certain employer benefits create taxable income that shows up in your gross wages even though you never see the cash. Group-term life insurance is a common example: your employer can provide up to $50,000 of coverage tax-free, but the cost of coverage above that amount is treated as taxable wages and appears on your pay stub and W-2.4Internal Revenue Service. Group-Term Life Insurance
What Is Not Included
Not everything your employer pays you counts as gross pay. Reimbursements for legitimate business expenses like travel, mileage, and supplies are excluded from gross income as long as your employer uses what the IRS calls an accountable plan, meaning you substantiate the expenses and return any excess. Payments that meet those rules are not wages and are not subject to income tax or payroll taxes.5Internal Revenue Service. Publication 15 (2026), Circular E, Employers Tax Guide Truly discretionary bonuses, where the employer decides both whether to pay and how much at the last minute, along with gifts on special occasions and paid time off, are also excluded from the regular rate calculation used for overtime.6U.S. Department of Labor. Fact Sheet 56A – Regular Rate of Pay Under the FLSA
One note on worker status: this article is about W-2 employee gross pay. If you are paid as an independent contractor on a 1099, no taxes are withheld from your payments, and you owe self-employment tax on top of income tax, so the mechanics below do not apply the same way.
Overtime and the Regular Rate
When a non-exempt employee works more than 40 hours in a workweek, the Fair Labor Standards Act requires overtime at no less than 1.5 times the employee’s regular rate of pay.7Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours The regular rate is not always the base hourly rate. It includes all compensation for the workweek (base pay plus shift differentials, non-discretionary bonuses, commissions, piece-rate earnings, and premiums for hazardous work) divided by the total hours worked.3eCFR. 29 CFR Part 778 – Overtime Compensation
Suppose you earn $20 an hour with a $1.50 night-shift differential. Your regular rate for a night-shift week is $21.50, and your overtime rate is $32.25 (1.5 × $21.50), not $30.00. If you work at two different rates in the same week, your employer calculates a weighted average by adding total straight-time earnings from all rates and dividing by total hours.8U.S. Department of Labor. Fact Sheet 23 – Overtime Pay Requirements of the FLSA Getting the regular rate wrong means the overtime portion of your gross pay is wrong.
Not every employee qualifies for overtime. The FLSA exempts workers in executive, administrative, and professional roles who meet both a salary test and a duties test.9eCFR. 29 CFR Part 541 – Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees The federal minimum salary threshold for these exemptions is $684 per week, or $35,568 per year. A 2024 Department of Labor rule would have raised the threshold significantly, but a federal court vacated that rule in November 2024, and enforcement reverted to the $684 weekly level.10U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemptions Some states set higher thresholds, and employers must follow whichever standard benefits the employee more.
Gross Pay vs. Net Pay
Net pay is what remains after mandatory and voluntary deductions come out of gross pay. The gap can be sizable. Someone with $60,000 in gross pay might take home only $45,000 to $48,000, depending on tax situation, benefits elections, and location.
Federal Income Tax
Federal income tax withholding is usually the biggest deduction. The amount pulled each pay period depends on what you put on Form W-4: your filing status, dependents, and any extra withholding you request.11Internal Revenue Service. About Form W-4, Employees Withholding Certificate For 2026, federal income tax rates run from 10% on the first $12,400 of taxable income (single filers) up to 37% on income above $640,600.12Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Social Security and Medicare
Under the Federal Insurance Contributions Act, 6.2% of your gross wages goes to Social Security and 1.45% goes to Medicare, with your employer paying a matching share. Social Security tax applies only up to the wage base, which is $184,500 in 2026; earnings above that are not subject to the 6.2% deduction.13Social Security Administration. Contribution and Benefit Base If you earn more than $200,000 in a calendar year, an additional 0.9% Medicare surtax applies to wages above that threshold, and your employer does not match it.
State and Local Taxes
Most states have their own income tax, withheld alongside federal tax. Several states also require employee contributions to state disability insurance or paid family leave, with rates generally between about 0.2% and 1.3% of wages. Some cities add a local income tax. Your location has a real effect on the distance between your gross and net pay.
Voluntary Deductions
Beyond taxes, your paycheck may reflect deductions you elected during benefits enrollment:
- Retirement contributions to a 401(k), 403(b), or similar plan.
- Your share of medical, dental, and vision insurance premiums.
- Flexible spending account (FSA) contributions for medical or dependent-care expenses.
- Health savings account (HSA) contributions if you are enrolled in a high-deductible health plan.
Many of these come out before federal income tax is figured. That reduces your taxable wages for the period, but your gross pay itself does not change.
Wage Garnishments
If a court orders your employer to withhold part of your earnings for unpaid debts, that garnishment further shrinks take-home pay. Federal law caps garnishment 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.14Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment Higher limits apply for child support and federal tax debts. Garnishments come out of pay after taxes, so they reduce net pay without changing gross pay.
Where Gross Pay Appears on Your W-2
At the end of each calendar year, your employer must give you a Form W-2 reporting your earnings and taxes withheld. For 2026 earnings, employers generally must furnish W-2s by February 1, 2027.15Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) Three boxes matter most:
- Box 1 (wages, tips, other compensation) shows taxable wages after pre-tax deductions like 401(k) contributions and health premiums are subtracted. This is not your full gross pay.
- Box 3 (Social Security wages) shows total wages subject to the 6.2% Social Security tax, up to the $184,500 wage base.13Social Security Administration. Contribution and Benefit Base
- Box 5 (Medicare wages and tips) shows total wages subject to Medicare tax. There is no wage base cap for Medicare.
Because pre-tax retirement and benefit contributions reduce Box 1 but not Boxes 3 and 5, these boxes often show different numbers. Your actual gross pay, meaning the total your employer paid you, may be higher than any single box on the form. You use the W-2 to complete your federal and state income tax returns.16Internal Revenue Service. About Form W-2, Wage and Tax Statement
If Your Gross Pay Looks Wrong
Compare your pay stub against your agreed-upon rate, the hours you worked, and any overtime, bonuses, tips, or commissions you earned. If a non-discretionary bonus was not folded into your overtime rate, or if you were treated as exempt when your salary or duties do not meet the FLSA tests, your gross pay is short.
An employer that violates FLSA minimum wage or overtime rules owes affected employees their unpaid wages plus an equal amount in liquidated damages, effectively doubling the liability, and employees can also recover attorney’s fees.17Office of the Law Revision Counsel. 29 USC 216 – Penalties Errors in gross pay cascade through every deduction and tax calculation, so even a small mistake in the base number leaves you with a noticeably smaller paycheck.