The basic definitions
Gross pay is your total earnings before anything is taken out: salary, hourly wages, bonuses and overtime. Net pay, often called take-home pay, is what is left after taxes and deductions. You may also see the word disposable income, which is net pay minus your necessary bills.
The relationship is simple: gross pay minus taxes minus deductions equals net pay. The complexity comes from the fact that some deductions are taken before tax is calculated and others after, and that the taxes themselves work in different ways.
Where the money goes, in order
For a typical US employee, the deductions fall into these groups:
- Pre-tax deductions. Money taken out before income tax is calculated, such as traditional 401(k) contributions and health insurance premiums paid through the employer. They shrink the amount of income that gets taxed.
- Federal income tax. Calculated on what remains after the pre-tax deductions and the standard deduction, using progressive brackets (explained below).
- Social Security and Medicare (FICA). Social Security is 6.2% of wages up to an annual wage base, and Medicare is 1.45% of all wages, with an extra 0.9% on high earners above a threshold. Your employer pays a matching share on top, which does not come out of your pay.
- State and local income tax. Rates vary widely. Several states, including Texas, Florida and Washington, do not tax wage income, while others use graduated brackets or a flat rate.
- Post-tax deductions. Roth 401(k) contributions, union dues, some insurance and wage garnishments come out after tax.
A worked example: $100,000 a year
Here is a single filer earning $100,000 with no pre-tax deductions, using the 2026 tax-year figures built into our take-home pay estimator:
- Standard deduction: $16,100, so taxable income is $83,900.
- Federal income tax: $1,240 + $4,560 + $7,370 = $13,170.
- Social Security: $6,200 and Medicare $1,450, so FICA is $7,650.
- Take-home before state tax: $100,000 − $13,170 − $7,650 = $79,180 a year, about $6,598 a month.
State income tax would come out of that, so the result depends on where you live. The point is the shape: roughly 21% of the gross went to federal taxes and payroll taxes before any state tax. Tax figures are updated every year and your own situation (filing status, credits, other income) will change the result, so treat this as an estimate and check official IRS guidance for your case.
Marginal versus effective tax rate
US federal income tax is progressive. Each slice of taxable income is taxed at its own rate. In the example above, the first $12,400 is taxed at 10%, the next slice at 12% and the remainder at 22%. The 22% is the marginal rate: the rate on your last dollars. The effective rate is total federal income tax divided by income, here $13,170 on $100,000, or about 13.2% of gross.
This clears up a common myth: a raise cannot cause you to take home less because it "pushes you into a higher bracket". Only the dollars above the threshold are taxed at the higher rate. Earning more always leaves you with more, although the share you keep of each extra dollar is lower.
The marginal rate is useful in other ways, too. A pre-tax 401(k) contribution is "paid for" at roughly your marginal rate: at 22% federal, a $6,000 contribution reduces take-home pay by about $4,680 before state tax, since $1,320 of tax is not owed.
Why your paycheck may not match the estimate
- Withholding is not your tax bill. Your employer withholds based on your W-4. The real tax is settled when you file, which is why some people get refunds and others owe.
- Pay frequency. Weekly, biweekly and semi-monthly schedules give different check sizes. A biweekly schedule produces 26 checks a year, so two months a year have three paychecks. Divide the annual net by the number of checks, not by 12, when comparing.
- State and local rules. Some localities add city taxes and some states have payroll programs for disability or family leave.
- Benefits elections. Dental, vision, FSAs and commuter benefits change the pre-tax and post-tax mix.
- Bonuses. Withholding on bonuses is often at a flat supplemental rate, so a bonus can look more heavily taxed on the check than it is at filing.
Using net pay in decisions
Budget from net pay, never gross. If you are comparing roles, compare net pay as well as gross, especially across states. When thinking about moving, pair this with the relocation cost comparison to see how the cost of living shifts. To compare whole packages including benefits and time, use the job offer comparison.
This guide is general information, not tax advice. For binding answers use IRS resources, your employer's payroll tools or a qualified tax professional.
Frequently asked questions
What is the difference between gross and net pay?
Gross pay is what you earn before deductions. Net pay is what you receive after taxes and deductions are taken out. Budgets should be based on net pay.
Do pre-tax deductions reduce my take-home pay?
Yes, but by less than the amount you contribute, because they lower your taxable income. A pre-tax contribution of $6,000 at a 22% federal rate reduces take-home pay by roughly $4,680 before state tax.
Can a raise reduce my take-home pay?
No. Only the extra income above a bracket threshold is taxed at the higher rate, so your net pay always rises when your gross pay rises, unless a benefit with an income limit is involved.
Why do some of my paychecks look larger?
Months with three biweekly paychecks, changes in benefit deductions, and the timing of bonuses can all change check sizes. Compare annual totals to see the true picture.
Does my employer pay payroll tax too?
Yes. Employers pay a matching 6.2% Social Security and 1.45% Medicare on your wages. That cost is separate from your pay and does not reduce your check.