Gross income is income before relevant deductions; net income is what remains after them. On a paycheck, gross pay is what you earned before taxes and other deductions, while net pay is the take-home amount. In U.S. tax filings, however, “gross income” has a broader meaning, and neither paycheck net pay nor gross pay is the same as adjusted gross income or taxable income.
Gross pay vs. net pay on a paycheck
For a paycheck, the basic relationship is:
Gross pay − taxes withheld − other paycheck deductions = net pay (take-home pay).
Gross pay is the amount paid before taxes or deductions. Net pay is the amount you receive after them. Depending on your circumstances, deductions can include federal, state or local income-tax withholding; Social Security and Medicare taxes; health-insurance premiums; retirement contributions; and other items. The IRS explains that these withholdings and deductions account for the difference between gross and net pay in its Tax Withholding Estimator guidance and payroll tax tutorial.
Example
For illustration only, if gross pay for a pay period is $2,000 and total deductions are $500, net pay is $1,500. This is arithmetic, not a tax estimate. Actual deductions depend on withholding, benefits, retirement contributions, location and other circumstances.
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How to check your paycheck
- Use the pay stub for the specific pay period you want to review.
- Find the gross-pay figure and note the period it covers.
- Review each listed tax and other deduction, then compare the total deductions with the difference between gross pay and net pay.
- Confirm that the resulting net-pay figure matches the amount deposited or otherwise paid to you.
A pay stub provides the record of gross pay, deductions and net pay; the Social Security Administration’s Ticket to Work resource notes that pay stubs should show a breakdown of deductions.
What “gross income” means for U.S. taxes
In federal tax law, gross income is not limited to wages. Internal Revenue Code § 61 says: “Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:” The provision lists compensation for services, business income, gains, interest, rent, royalties, dividends, annuities and pensions, among other items. See the 2024 edition of the U.S. Code, § 61.
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For employees, the IRS says gross income generally includes wages, salaries, commissions, fees, tips, fringe benefits and stock options. Having taxes withheld from your wages does not generally remove those wages from gross income: the IRS says withheld taxes are generally considered received and included in gross income for the year withheld. Some salary-reduction contributions may receive different treatment for income-tax wages while still being subject to Social Security and Medicare taxes, so the treatment depends on the particular arrangement. See the IRS pages on wages and salaries and taxable and nontaxable income.
Gross income, AGI and taxable income are different
These figures refer to different stages or contexts, so do not use them interchangeably:
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- Gross pay: your paycheck earnings before payroll deductions.
- Net pay: the amount left after payroll deductions—the take-home amount.
- Gross income for tax purposes: a broader measure that can include wages and other types of income.
- Adjusted gross income (AGI): total gross income from all sources minus certain adjustments. The IRS describes AGI as a figure calculated before the standard or itemized deduction; see its definition of adjusted gross income.
- Taxable income: a later tax-return measure. It is not the same as your paycheck’s net pay.
A payroll deduction does not necessarily work like an adjustment used to calculate AGI or like a deduction used to arrive at taxable income. Check the applicable tax rules for a specific deduction rather than assuming that a smaller paycheck amount means lower gross income.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why gross and net pay vary between people
Two people with the same gross pay can receive different net pay. Their withholding, benefits, retirement contributions, location and other circumstances may differ. For the same reason, a job offer’s gross salary does not establish how much an employee will take home. Compare pay figures for the same period and consider the individual deductions that apply; there is no universal percentage of gross pay that becomes net pay.
“Net income” also has different uses outside paycheck discussions, including in business accounting. When comparing figures, identify the context and determine which income or deductions the figure includes.
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