Gross Pay vs Net Pay: What’s the Difference?

💸 If you’ve ever looked at your paycheck and thought, “Wait, where did all my money go?” — you’re not alone!

That’s where the difference between gross pay and net pay comes in. Understanding both can help you plan your budget, spot errors in your pay stub, and make smarter financial choices.

Let’s break it down in plain English.

🧾 What Is Gross Pay?

Gross pay is your total income before any deductions. It’s what your employer agrees to pay you based on your salary, hourly rate, or contract.

If you’re salaried, it’s usually the annual amount divided by pay periods.
If you’re hourly, it’s your hourly rate times the number of hours worked.

Example:

If you make $20/hour and work 40 hours a week:

$20 × 40 = $800 gross pay for the week

Gross pay may also include bonuses, overtime, commissions, and other earnings before anything is taken out.

💵 What Is Net Pay?

Net pay is the amount of money you actually take home. It’s what you get after taxes and deductions are subtracted from your gross pay.

This is also called:

  • Take-home pay
  • Net income
  • The amount you see in your bank account

Example:

If your gross pay is $800 and you have $150 in deductions (for taxes, insurance, retirement, etc.), your net pay is:

$800 – $150 = $650 net pay

📉 What Gets Taken Out of Gross Pay?

Here are common deductions that reduce your gross pay:

  • Federal income tax
  • State income tax (if applicable)
  • Social Security and Medicare (FICA)
  • Health insurance premiums
  • 401(k) or retirement contributions
  • Union dues or wage garnishments (if any)

These deductions vary depending on your location, employer, and benefits.

✨ Why It Matters

Understanding gross vs net pay helps you:

  • Budget better — you know how much you actually have to spend
  • Avoid surprises on your first paycheck
  • Evaluate job offers more accurately
  • Check your pay stub for errors or missing hours

📌 Quick Recap

TermWhat It MeansExample (Weekly)
Gross PayTotal before deductions$800
Net PayWhat you actually take home$650
DeductionsTaxes, benefits, retirement, etc.$150

💡 Gross pay is what you earn.
Net pay is what you keep.