Gross vs net pay

Two numbers on every paycheck

Gross pay is the full amount you earned for the pay period: your hourly rate times your hours, or your salary for that period, before anything is taken out. It's the bigger number at the top of your pay stub.

Net pay is what actually lands in your bank account. Most people call it take-home pay. It's the smaller number at the bottom of the stub.

What happens in between

Before the money reaches you, your employer withholds taxes and other deductions and sends each one where it needs to go: income tax and payroll taxes to the government, and things like a health insurance premium or retirement savings to the plan you signed up for.

So gross pay − taxes − other deductions = net pay. Every one of those has its own line on your pay stub.

The $4,000 example

In a made-up example with round numbers, you earn $4,000 and $900 comes out, so $3,100 lands in your account: $4,000 − $900 = $3,100.

That gap isn't a mistake. Most of it is tax you would owe anyway; withholding pays it a little at a time instead of in one big bill. The real amount differs for everyone: it depends on your income, where you live, the W-4 form you gave your employer and the benefits you chose.

Budget with net pay

When you build a budget, plan with net pay, the money you actually get. If you plan with gross pay, you'll budget money you never receive.

Try it yourself

Open your most recent pay stub (or your employer's payroll app). Find the gross pay at the top and the net pay at the bottom, then subtract to see how much came out. Look at each deduction line and sort it into "tax" or "something I signed up for". Then check that your budget starts from the net number.

Good to know

• Gross pay = total pay before taxes and other deductions; net pay = what remains, also called take-home pay (CFPB, "Understanding your pay stub").
• The $4,000 → $3,100 split is a made-up round example, not a typical rate. The real amount withheld depends on income, location, filing status, the W-4 and benefit choices.
• "Most of it is tax you would owe anyway" is simplified: withholding is a prepayment of income tax, which can be more or less than what you finally owe, so you may get a refund or owe a balance at tax time.
• Some deductions aren't taxes at all, like health insurance premiums or retirement savings.
• Budgeting on net pay follows CFPB guidance.
• Same idea in Canada, though the deductions differ (CPP, EI and income tax).
• Educational only, not financial advice.

Why it matters for you

Knowing the difference stops the payday surprise and keeps your budget honest. Next, we'll break down the five things that take a bite before you get paid.