Gross Pay vs Net Pay
Gross pay is the number in your offer letter. Net pay is the number in your bank account. For most American workers the gap is between a fifth and a third — and about half of that gap is not tax at all.
Tax year 2026 · Updated 2026-08-29 · Guide
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The definitions
Gross pay is total earnings for the period before anything is removed: salary or hourly wages, plus overtime, bonus, commission, tips and any other compensation.
Net pay — also called take-home pay — is what remains after every tax and deduction. It is the figure that reaches your account.
Between them sits taxable income, which is gross pay less pre-tax deductions. It is the figure the tax rates are applied to, and it is why the tax on your stub is never a clean percentage of gross.
How large the gap actually is
It varies more by state and filing status than most people expect.
| Situation | Gross | Net | Gap |
|---|---|---|---|
| Single, Texas | $70,000 | $58,075 | 17% |
| Single, Illinois | $70,000 | $54,755 | 21.8% |
| Single, California | $70,000 | $54,806 | 21.7% |
| Single, New York City | $70,000 | $51,970 | 25.8% |
| Married filing jointly, Texas | $70,000 | $60,605 | 13.4% |
| Married filing jointly, California | $70,000 | $58,960 | 15.8% |
Filing status moves the number by more than most state choices do. The same $70,000 taxed jointly keeps several thousand more than it does as a single filer, because the joint brackets are twice as wide.
Half the gap is not tax
Health insurance premiums, dental and vision cover, a flexible spending account, life and disability insurance, retirement contributions, union dues, commuter benefits. For a typical employee with family health cover and a 6% retirement contribution, those can easily exceed the federal income tax line.
The distinction matters because these are purchases, not taxes. A $500 monthly family premium is not money lost — it is health cover bought with pre-tax dollars, which costs roughly $340 of take-home rather than $500.
Which number to use, when
Use gross for mortgage and rental applications, most loan underwriting, salary comparisons and negotiating.
Use net for budgeting, affordability and any decision about what you can actually spend.
The 28/36 rule that lenders apply — housing under 28% of gross, total debt under 36% — is deliberately based on gross, which is why a mortgage a lender approves can still feel unaffordable against your actual take-home.
Frequently asked questions
Is take-home pay the same as net pay?
Yes, the two terms mean exactly the same thing.
How do I calculate net pay from gross pay?
Subtract pre-tax deductions, then all taxes, then post-tax deductions. Order matters because pre-tax deductions reduce the amount that gets taxed.
Why is my net pay so much lower than my salary?
Federal income tax and FICA account for 17% to 26% of gross for most workers, state and local tax adds up to 12% more, and benefit and retirement deductions add the rest.
Should I budget on gross or net income?
Net. Gross income overstates what you can spend by a fifth to a third.