Gross vs Net Income Explained
Understand the difference between gross and net income, what deductions affect your take-home pay, and how to calculate your net income.
What is Gross Income?
Gross income is your total income before any taxes or deductions are taken out. It's your salary or wages as stated in your employment contract.
What is Net Income?
Net income (also called take-home pay) is your income after taxes and deductions. It's the actual amount you receive in your bank account.
The Formula
Net Income = Gross Income - Taxes - Deductions
What Gets Deducted?
- Income Taxes: Federal, state, and local taxes
- Social Security: Typically 6.2% of gross income (up to limit)
- Medicare: Typically 1.45% of gross income
- Retirement Contributions: 401(k), pension plans
- Health Insurance: Premiums deducted from paycheck
- Other Deductions: Life insurance, disability insurance, etc.
Example Calculation
Annual Gross Income: $60,000
| Gross Income | $60,000 |
| Income Taxes (20%) | -$12,000 |
| Social Security (6.2%) | -$3,720 |
| Medicare (1.45%) | -$870 |
| 401(k) Contribution (5%) | -$3,000 |
| Net Income (Annual) | $40,410 |
| Net Income (Monthly) | $3,367.50 |
Why It Matters
Understanding gross vs net income helps you:
- Budget based on actual take-home pay
- Negotiate salary (always discuss gross income)
- Plan for taxes and deductions
- Make informed financial decisions
Calculate Your Take-Home Pay
Use our Take-Home Pay Calculator to estimate your net income.
Try the Calculator
Take-Home Pay Calculator
Estimate your net income after taxes and deductions. Calculate take-home pay from gross salary using effective tax rates.
How to: Enter your gross income - your total income before taxes and deductions
Savings Calculator
Plan your savings and see how regular deposits grow over time. Calculate savings growth with compound interest.
How to: Enter your initial savings - the amount you already have saved (can be $0)