Gross Pay vs Net Pay: Your Pay Stub Explained

Gross earnings, taxable wages and the bank deposit

Your offer letter usually quotes gross salary or an hourly rate. Your pay stub explains how those earnings become the money deposited into your bank account.

Net pay = gross earnings − employee taxes − pre-tax deductions − post-tax deductions. Do not subtract pre-tax benefits twice if a payroll screen already shows adjusted wages.

A traditional 401(k) contribution does not reduce gross earnings. It generally reduces federal income-tax wages, but not Social Security or Medicare wages.

Eligible Section 125 health premiums generally reduce federal income-tax and FICA wages. State treatment varies; a post-tax premium does not reduce either wage base.

Follow the deduction lines on your pay stub

• Federal income tax withholding: depends on earnings, pay frequency and W-4 elections. Withholding is a payment toward your final annual tax, not the final bill itself.
• State and local income tax: depends on where you work and live. No state wage income tax does not mean no state payroll contributions or other taxes.
• Social Security: employee rate of 6.2% on covered wages up to $184,500 in 2026.
• Medicare: 1.45% on covered wages without a wage cap. Employers begin withholding an additional 0.9% above $200,000 of wages, regardless of filing status; the final liability uses filing-status thresholds.
• Benefits and other deductions: retirement, insurance, union dues or garnishments. Employer-paid benefits and employer taxes are not employee deductions.

Your marginal income-tax bracket is not the percentage taken from your whole paycheck. Only the taxable income within each bracket faces that rate.

A raise does not reduce take-home pay merely because it crosses a federal bracket. Benefit phase-outs, other taxes and changes in deductions can still affect the overall result.

Three examples with different lessons

These illustrative people use the existing 2026 engine: 26 biweekly paychecks, standard deduction and no extra W-4 entries or credits. Federal withholding and annual state-tax estimates are separate calculations.

Local income tax is not included. These examples show only the wages and benefits stated below, not additional household income or a complete tax return.

Sarah: retirement savings are not a tax

Sarah earns $52,000 in Georgia, files single and contributes 6% to a traditional 401(k): $120.00 per paycheck. No health premium is modeled.

Her gross earnings are still $2,000.00 per paycheck. The retirement contribution moves money into savings; it is not money paid to the government.

Her estimated annual net is $39,525.79. Income-tax savings partly offset the contribution, but FICA is still based on covered wages before the 401(k) deferral.

Michael: post-tax insurance reduces the deposit, not taxable wages

Michael earns $95,000 in Colorado and files single. His traditional 401(k) is 8% ($292.31 per paycheck); his health premium is $150.00 after tax.

The premium reduces his deposit dollar for dollar without reducing the income-tax wage base. His estimated annual net is $62,279.30.

David: an incomplete estimate is not take-home pay

David's modeled Ohio wages are $72,000, married filing jointly, with no additional spouse wages modeled. A working spouse's earnings would require a household calculation and appropriate W-4 adjustments.

He contributes 6% to a traditional 403(b) ($166.15 per paycheck) and pays a $180.00 eligible pre-tax health premium.

Ohio state income tax: Not calculated. The current annual state calculation is unresolved for this example. The $54,650.02 annual subtotal excludes state income tax and is not a complete take-home estimate.

The lesson is to check what an estimate excludes before using it for rent or other fixed commitments. David's result also distinguishes pre-tax health insurance from Michael's post-tax premium.

A five-minute check of your own paycheck

1. Confirm the period: dates, paid hours, rate, overtime and any bonus. A first paycheck may cover only part of a period.
2. Reconcile earnings: salary divided by pay periods, or hourly earnings plus other compensation. Compare current-period amounts, not year-to-date totals.
3. Check benefit elections: match retirement percentages and insurance premiums to what you selected. Identify pre-tax and post-tax lines.
4. Reconcile the deposit: subtract employee deductions from gross earnings. Multiple direct deposits should add up to net pay; payroll rounding can create small differences.
5. Ask payroll about discrepancies: bring the pay stub, benefit confirmation and W-4 elections. Check year-to-date wage bases if Social Security withholding stops.

W-2 Box 1 generally reports federal taxable wages, not your full gross salary and not net pay. Boxes 3 and 5 report Social Security and Medicare wages, which can differ from Box 1.

Use net deposits for spending plans. Lenders and landlords often assess gross income instead; their approval formula is not a household affordability budget.

Biweekly pay usually means 26 checks, while semimonthly means 24. Dividing annual net by 12 gives a monthly average, not necessarily the deposits in each calendar month.

If your deposit changes, check the cause before cutting benefits

Bonuses, unpaid time, benefit renewals, W-4 changes and wage-base limits can change net pay without changing base salary. Compare consecutive pay stubs line by line.

Review withholding with the IRS estimator, especially after a marriage, second job or large income change. A refund may include refundable credits, so a large refund alone does not prove excessive withholding.

Reducing withholding changes when you pay tax, not the final liability. Pre-tax contributions can save tax while still reducing spendable cash; consider employer matching and coverage before reducing benefits.

Choose the calculation that answers your question

• Paycheck calculator: start with gross earnings and review the deduction breakdown.
• Reverse net pay calculator: start with a take-home target and estimate the gross salary required.
• Take-home budget planner: allocate estimated net income to expenses and savings.
• 401(k) paycheck impact calculator: compare retirement contributions and their effect on cash pay.

For competing offers, compare salaries after taxes alongside benefits and living costs. Review the calculation methodology before relying on an estimate.

Exact payroll withholding can differ with W-4 elections, employer rounding, local taxes and deduction timing. Unresolved state results must not be treated as zero; annual liability estimates are not employer withholding tables.