Gross vs Net Income: How Much of Your Paycheck Do You Actually Keep?
Net income is your take-home pay — the amount deposited into your bank account on payday. It's calculated by subtracting all taxes and deductions from gross income:
For most workers, net income lands between 65% and 80% of gross income. On a pay stub, this is the number at the bottom — and it's the number you should actually budget with.
Gross vs Net Income: Side-by-Side Comparison
| Feature | Gross Income | Net Income |
|---|---|---|
| Definition | Total earnings before deductions | Take-home pay after deductions |
| Where it appears on your pay stub | Top | Bottom |
| Used for | Job offers, loan applications, tax bracket | Budgeting, daily spending |
| Includes overtime/bonuses | Yes, in full | Yes, after tax |
| Includes 401(k) deduction | No | Already subtracted |
| Typical share of gross | 100% | 65%–80% |
What Gets Deducted From Gross Pay
- Federal income tax Based on income and filing status; rates range from 10% to 37%.
- State income tax Varies by state; nine states (including Texas, Florida, and Washington) charge 0%, others range from 2.5% to 13.3%.
- Social Security tax 6.2% of gross pay, up to $184,500 in 2026 wage base.
- Medicare tax 1.45% of all gross pay, no cap; an extra 0.9% applies above $200,000 for single filers.
- 401(k) or retirement Contributions reduce your taxable income.
- Health insurance Medical, dental, and vision premiums.
- HSA & FSA Pre-tax savings accounts for healthcare needs.
- Roth 401(k) Retirement savings with tax-free future withdrawals.
- Wage garnishments Obligated deductions like child support, alimony, or back taxes.
Real Example: $60,000 Salary in Texas vs. California
Sarah — Houston, TX
Single, no dependents, biweekly pay, 5% to 401(k), $100/paycheck health insurance.
| Step | Amount |
|---|---|
| Gross pay per paycheck | $2,307.69 |
| 401(k) (5%) | –$115.38 |
| Health insurance | –$100.00 |
| Taxable income | $2,092.31 |
| Federal tax (approx.) | –$173.00 |
| State tax (TX = 0%) | –$0.00 |
| Social Security (6.2%) | –$143.08 |
| Medicare (1.45%) | –$33.46 |
| Net take-home pay | $1,742.77 (≈75% of gross) |
Maria — Los Angeles, CA
Same salary and deductions, but in California (Approx. 6% state tax).
| Step | Amount |
|---|---|
| Gross pay per paycheck | $2,307.69 |
| 401(k) + health insurance | –$215.38 |
| Federal tax (approx.) | –$173.00 |
| State tax (CA, approx. 6%) | –$125.54 |
| Social Security (6.2%) | –$143.08 |
| Medicare (1.45%) | –$33.46 |
| Net take-home pay | $1,617.23 (≈70% of gross) |
*State tax figures are approximate and vary based on filing status and local brackets. Use the calculator above for your exact numbers.
Net Income by State
For a single filer earning $60,000/year with no dependents, approximate net income as a percentage of gross:
| State | Approx. Net Income % of Gross |
|---|---|
| Texas, Florida, Washington (no state tax) | 75%–80% |
| Average mid-tax state | 72%–76% |
| California, New York (higher state tax) | 65%–70% |
Why You Should Budget on Net Income, Not Gross
Budgeting off your gross pay is one of the most common money mistakes — it makes you think you have more available cash than you actually do.
The 50/30/20 rule, based on net income:
- 50% Needs Rent, groceries, utilities, and essential bills.
- 30% Wants Dining out, entertainment, hobbies, and shopping.
- 20% Savings Emergency fund, retirement, investments, or debt payoff.
General guidelines:
Common Mistakes People Make
- Budgeting off gross pay instead of net, leading to overspending.
- Forgetting pre-tax deductions reduce take-home pay even though they lower taxable income and build savings.
- Not rechecking withholding after a raise or bonus, which can lead to owing tax at year-end.
- Assuming all states tax income the same way — nine states charge no income tax at all.
- Ignoring the Social Security wage base cap, which stops the 6.2% deduction once you hit the annual limit.
How to Read Gross and Net on Your Pay Stub
- Gross pay Total earnings for the pay period before any taxes or deductions are taken out.Top of Stub
- Federal/state tax withholding Amounts automatically calculated and sent directly to the IRS and your state government.
- Social Security FICA deduction of 6.2% of your gross pay, up to the annual wage cap.
- Medicare FICA deduction of 1.45% of all gross pay, helping fund federal healthcare.
- 401(k) and health insurance Your personal contribution amounts deducted for retirement accounts and insurance premiums.
- YTD (Year-to-Date) The cumulative total of earnings and deductions accumulated since January 1st of the current year.
- Net pay Your actual "take-home" pay. This is the exact amount deposited into your bank account.Bottom of Stub
Frequently Asked Questions — Gross vs Net Income
Gross income is your total earnings before any deductions. Net income is your take-home pay after taxes and deductions.
Subtract all taxes and deductions (federal tax, state tax, Social Security, Medicare, 401k, health insurance, etc.) from gross income.
Common deductions include federal income tax, state income tax, Social Security, Medicare, 401k contributions, and health insurance premiums.
401k contributions are usually deducted from gross income before taxes (pre-tax for traditional 401k).
Health insurance is typically deducted from gross pay before taxes if offered as a pre-tax benefit.
Net income is usually 65% to 80% of gross income, depending on taxes and deductions.
Because taxes (federal, state, Social Security, Medicare) and deductions (401k, insurance, etc.) are taken out before you receive your pay.
Gross pay is at the top of your pay stub. Net pay is at the bottom after all deductions.
Always budget based on net income, because that is your actual spendable money.
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