Gross Pay vs. Net Pay

Gross pay is what you earned. Net pay is what you keep. Everything between them is a deduction, and each deduction follows its own rule about which taxes it reduces. Once you know the order of operations, any pay stub reads like simple subtraction.

The definitions

Gross pay is total earnings for the pay period before any deductions:

• Salary: annual salary ÷ pay periods. $52,000 paid biweekly is $2,000.00.
• Hourly: rate × regular hours, plus overtime at 1.5 × the regular rate for hours over 40 in the workweek, plus any bonus or commission.

Net pay is gross pay minus everything withheld or deducted: taxes, pre-tax benefits, after-tax deductions and garnishments. It's the amount on the check or the direct deposit.

For independent contractors, gross and net are usually the same, because clients generally don't withhold. The taxes come due later, on the contractor's own return.

The order of operations

1. Start with gross pay.
2. Subtract pre-tax deductions to find each tax's taxable wages. Different taxes have different bases.
3. Calculate each tax on its own base.
4. Subtract after-tax deductions such as Roth 401(k) contributions, union dues or garnishments.
5. What remains is net pay.

Step 2 is where most confusion comes from:

Deduction	Reduces federal income tax wages?	Reduces Social Security and Medicare wages?
Traditional 401(k), 403(b) deferral	Yes	No
Section 125 health, dental or vision premium	Yes	Yes
Roth 401(k) contribution	No	No
Union dues, garnishments	No	No

That's why the W-2 often shows Box 1 (income tax wages) lower than Boxes 3 and 5 (Social Security and Medicare wages): 401(k) deferrals come out of Box 1 but stay in Boxes 3 and 5.

Worked example: $2,000 gross to net, 2026

A single employee in Texas, paid biweekly, with a 2026 W-4 showing no adjustments. Each paycheck has a 5% traditional 401(k) deferral, a $40 Section 125 health premium, and a $50 Roth 401(k) contribution.

First, the taxable wage bases:

Base	Calculation	Amount
Federal income tax wages	$2,000 − $100 401(k) − $40 health	$1,860.00
Social Security and Medicare wages	$2,000 − $40 health	$1,960.00

Then the stub:

Line	Amount	Note
Gross pay	$2,000.00
Traditional 401(k), 5%	−$100.00	Pre-tax
Health premium (Section 125)	−$40.00	Pre-tax
Federal income tax	−$139.35	Pub. 15-T on $1,860
Social Security	−$121.52	6.2% of $1,960
Medicare	−$28.42	1.45% of $1,960
Roth 401(k)	−$50.00	After-tax
Net pay	$1,520.71

Without any benefit deductions, the same $2,000 nets $1,690.85. The $190 of benefits ($100 + $40 + $50) reduce take-home pay by only $170.14, because the pre-tax deductions also lower the taxes. Federal tax drops by $16.80, Social Security by $2.48 and Medicare by $0.58.

Why net pay changes from paycheck to paycheck

• Hours and overtime. More hours raise gross pay and, because withholding is figured per paycheck, raise federal tax too.
• A new W-4. Changing filing status, Step 3 credits or Step 4 entries changes federal withholding from the next payroll on.
• Benefit changes. Open enrollment often changes Section 125 premiums in January.
• Bonuses. Supplemental pay may be withheld at a flat 22%. See our bonus pay stub guide.
• Hitting the Social Security wage base. Once wages from an employer reach $184,500 in 2026, Social Security stops and net pay rises for the rest of the year.
• Crossing $200,000. The 0.9% Additional Medicare Tax starts, and net pay falls slightly.

Which number do people ask for?

Mortgage lenders qualify you on gross income converted to a monthly figure. Fannie Mae's base-income guidance gives biweekly pay as gross × 26 ÷ 12, so $2,000 biweekly is $4,333.33 a month. Hourly pay is rate × average weekly hours × 52 ÷ 12.

Landlords commonly compare gross monthly income to the rent, and may check net deposits against bank statements. See pay stubs for rental applications.

Your budget runs on net pay. Annualize it the same way: $1,520.71 × 26 = $39,538.46 a year, or about $3,294.87 a month.

Check your own gross-to-net

Our pay stub generator shows each base and each deduction on a free preview, so you can see exactly where the difference between gross and net goes. For a line-by-line guide to the stub itself, see how to read a pay stub.