Gross Pay vs Net Pay
Last updated: June 2026
Two very different numbers
Gross pay is the headline figure — the salary in your offer letter or the hourly rate times hours worked. Net pay (take-home pay) is what's left after taxes and deductions come out. The difference commonly runs 20–35% of gross, which is why budgeting from your salary instead of your take-home pay leads to overspending.
What comes out between gross and net
- Income tax — federal, and often state and local.
- Payroll taxes — contributions for social programs, deducted automatically.
- Pre-tax deductions — retirement contributions and some insurance, which lower your taxable income.
- Post-tax deductions — items taken after tax, such as certain insurance or garnishments.
A worked example
On $5,000 of gross monthly pay:
- Income and payroll taxes of about 18% remove roughly $900.
- A 5% pre-tax retirement contribution removes $250 (and lowers taxable income).
- Other deductions of $150 come out.
- Net pay ≈ 5,000 − 900 − 250 − 150 = $3,700.
The $5,000 salary becomes $3,700 in the bank — a 26% gap. Plan your rent, bills, and savings around the $3,700.
Why pre-tax deductions are powerful
Money you put into a pre-tax retirement account isn't taxed now, so a $250 contribution might reduce your take-home pay by only around $200 after the tax saving. You're moving money into savings at a discount — one of the few ways to grow wealth while lowering your current tax bill.
Use the calculator
Put these ideas to work with the Take-Home Pay Calculator. You can also browse all MoneyCalcKit calculators or read the calculator methodology for formulas and assumptions.
Frequently asked questions
Why is my take-home pay so much lower than my salary?
Taxes and deductions — income tax, payroll tax, retirement, and insurance — come out before you're paid, commonly reducing gross pay by 20–35%.
Should I budget with gross or net pay?
Always net (take-home) pay. That's the money you actually control after taxes and deductions.
Do pre-tax deductions reduce my take-home pay dollar-for-dollar?
No — because they lower your taxable income, a pre-tax contribution reduces take-home pay by less than the amount contributed.