Gross Pay vs Net Pay: How to Calculate Both (2026)

This article is for general information, not tax or legal advice. Tax rates, brackets, and contribution limits change most years. Verify current figures with the IRS and your state before relying on them, or talk to a payroll professional.

You were quoted a $60,000 salary. Your first paycheck lands and it is thousands of dollars short of $60,000 divided by the number of pay periods. Where did the rest go?

The answer is the difference between gross pay and net pay. It is the most misunderstood part of a paycheck, and it works the same whether you are an employee reading your pay stub or an employer trying to figure out what a hire really costs. Here is the full picture, with 2026 numbers.

Gross pay vs net pay in one line

Gross pay is total earnings before any deductions. Net pay is what is left after taxes and other deductions come out, the amount that actually reaches your bank account. Net pay is also called take-home pay.

The core formula is simple:

Gross Pay − Deductions = Net Pay

Everything hard about paychecks lives inside that word “deductions.” Here is the contrast at a glance:

| | Gross Pay | Net Pay | |---|---|---| | What it is | Total earnings before deductions | Take-home after deductions | | Where you see it | Job offer, salary, hourly rate | Your bank deposit | | Used for | Loan and mortgage applications | Budgeting real spending | | Bigger or smaller | Always the larger number | Always the smaller number |

For a typical worker, net pay runs about 25% to 35% below gross. The rest of this guide is about where that gap comes from.

How to calculate gross pay

Gross pay is the easy half, and how you find it depends on how someone is paid.

Salaried workers: divide the annual salary by the number of pay periods in the year. A $60,000 salary paid biweekly (26 checks) is $60,000 ÷ 26 = $2,307.69 gross per paycheck.

Hourly workers: multiply the hourly rate by hours worked, then add overtime. Overtime is usually 1.5× the regular rate for hours over 40 in a week. Someone at $25/hour who works 45 hours earns (40 × $25) + (5 × $37.50) = $1,187.50 for that week.

Pay frequency changes the per-check number but not the annual total. Common schedules are weekly (52 checks), biweekly (26), semimonthly (24), and monthly (12).

Gross pay also includes more than base wages. Tips, bonuses, commissions, and overtime all count toward gross for the period in which they are paid, which is why a bonus check can look heavily taxed even when nothing about your rate changed.

The deduction stack between gross and net (2026)

Deductions come out in a specific order, and the order matters. Here is the stack, top to bottom.

1. Pre-tax deductions. These come out first and lower the income that gets taxed. Traditional 401(k) contributions (up to $24,500 in 2026), HSA contributions ($4,400 self-only / $8,750 family), Health FSA ($3,400), and most health insurance premiums are pre-tax. Because they shrink taxable income, they reduce the tax you owe.

2. Federal income tax. Withheld based on your W-4 and the 2026 brackets, which run from 10% up to 37%. Withholding is calculated on taxable wages, meaning gross minus pre-tax deductions minus the standard deduction ($16,100 single / $32,200 married filing jointly / $24,150 head of household in 2026).

3. FICA (Social Security + Medicare). Social Security is 6.2% on wages up to the 2026 wage base of $184,500. Medicare is 1.45% with no cap, plus an extra 0.9% on wages above $200,000. Combined, the employee FICA rate is 7.65%. One catch: most pre-tax retirement contributions do NOT reduce FICA wages, only income-tax wages.

4. State and local tax. This varies more than anything else on the stub. Nine states have no income tax at all, while others run flat or graduated rates, and some cities add their own local tax on top.

5. Post-tax deductions. These come out last, after tax is already calculated, so they do not lower your tax. Roth 401(k) contributions, wage garnishments, and union dues are common examples.

The pre-tax versus post-tax split is the part most paycheck explainers skip. A dollar into a traditional 401(k) escapes income tax now. The same dollar into a Roth 401(k) is taxed first. Same retirement account, very different effect on today’s net pay.

A full gross-to-net example with 2026 numbers

Let’s run one worker end to end. Sarah earns $60,000, is single, paid biweekly, and puts 5% into a traditional 401(k). She works in a state with a flat 4% income tax. We will work per paycheck (26 per year).

Step 1: Gross pay per check. $60,000 ÷ 26 = $2,307.69

Step 2: Pre-tax 401(k). 5% of $2,307.69 = $115.38. This lowers her income-tax wages but not her FICA wages.

Step 3: Federal income tax. Her annual taxable wage is roughly $60,000 − $3,000 (401k) − $16,100 (standard deduction) = $40,900. Run through the 2026 brackets, her annual federal tax lands near $4,600, or about $177 per paycheck.

Step 4: Social Security. 6.2% of the full $2,307.69 (401k does not reduce it) = $143.08

Step 5: Medicare. 1.45% of $2,307.69 = $33.46

Step 6: State income tax. 4% of taxable wages. On roughly $1,993 of state-taxable pay per check, that is about $79.72

Step 7: Add up the deductions.

401(k): $115.38
Federal income tax: $177.00
Social Security: $143.08
Medicare: $33.46
State tax: $79.72
Total deductions: $548.64

Step 8: Net pay. $2,307.69 − $548.64 = $1,759.05

Sarah’s gross is $2,307.69 and her take-home is $1,759.05, a gap of about 24%, and she has not even added a health premium yet. Worth noting: $115.38 of that “loss” is her own 401(k), money she still owns, just parked in her retirement account instead of her checking account.

Gross vs net pay for employers: it does not stop at the paycheck

Everything above is the employee’s view. For an employer, gross pay is only the starting line, because you owe several taxes on top of what the worker sees.

FICA match. You pay a matching 7.65% (6.2% Social Security up to $184,500, plus 1.45% Medicare). For Sarah’s $60,000, that is $4,590 for the year, out of your pocket, not hers. See our employer FICA match guide for the full breakdown.

FUTA. Federal unemployment tax is 6.0% on the first $7,000 of wages, but a state credit usually drops it to 0.6% effective, about $42 per employee per year.

SUTA. State unemployment tax, with a rate and wage base set by your state and your claims history.

Add it up and a $60,000 employee typically costs $65,000 or more before benefits. This is the number small business owners miss when budgeting a hire: the true cost of an employee is well above their gross pay, and their gross pay is already well above their net.

Why your net pay changes (and how to check it)

Net pay is not fixed. Several things move it during the year.

Wage-base caps. Once your year-to-date wages cross $184,500 in 2026, Social Security withholding stops, and your paychecks jump for the rest of the year.

W-4 changes. Marriage, a new dependent, or adjusting your withholding all change federal tax.

Raises and brackets. A raise can push part of your income into a higher bracket, so the extra take-home is a bit less than the raise itself.

Benefit enrollment. Signing up for health insurance or bumping your 401(k) percentage lowers net pay (and, for pre-tax items, your tax).

The reliable way to check any of this is to run the numbers per paycheck rather than eyeball them. WorkLogs44 does exactly that, computing gross to net for a single worker or a whole team, decimal-precise, across all 50 states plus DC, and tracking each person’s year-to-date wages so caps kick in on the right check. If you want to model one paycheck fast, try the salary-to-paycheck calculator, or download the app to run a full payroll.

Frequently Asked Questions

What is the difference between gross pay and net pay?

Gross pay is your total earnings before any deductions. Net pay is what actually lands in your bank account after taxes and other deductions come out. Net pay is often called take-home pay.

How do you calculate net pay from gross pay?

Start with gross pay, subtract pre-tax deductions, then subtract federal income tax, FICA, and state or local tax, then subtract any post-tax deductions. What remains is net pay. The formula is gross pay minus all deductions equals net pay.

Why is my paycheck smaller than my salary?

Your salary is a gross figure. Between gross and net you lose federal income tax, Social Security and Medicare (FICA), usually state tax, and any benefits you elected like a 401(k) or health premiums. For most earners the gap is 25% to 35%.

Is gross pay or net pay used for a mortgage or loan application?

Lenders qualify you on gross income, the figure before taxes and deductions. Your debt-to-income ratio is calculated against gross pay, not the smaller net amount that hits your account.

Do employers pay taxes on top of gross pay?

Yes. On top of an employee’s gross wages, the employer pays a matching 7.65% in FICA, plus FUTA (0.6% effective on the first $7,000) and state SUTA. An employee’s true cost is higher than their gross pay.

Why does my take-home pay increase later in the year?

Social Security tax stops once your year-to-date wages reach the annual wage base, which is $184,500 in 2026. High earners who cross that ceiling see the 6.2% Social Security deduction disappear, so later paychecks are larger.

Want to see your own gross-to-net breakdown without doing the arithmetic? Get WorkLogs44 and run any paycheck, or a full team payroll, in seconds.