What Is Take-Home Pay? Gross vs Net Income Explained

Understand the difference between gross pay and net pay, what gets deducted from your paycheck, and how to calculate your real income.

Gross Pay vs Net Pay

Gross pay is your total compensation before any deductions — the number on your offer letter. Net pay (take-home pay) is what actually lands in your bank account after taxes and other deductions are removed. For most Americans, the gap between gross and net is 20–35% of gross income.

What Gets Deducted From Your Paycheck?

Federal income tax: Based on your taxable income and filing status. Ranges from 10% to 37% depending on income bracket. This is withheld based on your W-4 elections.
State income tax: Varies by state from 0% (Texas, Florida, etc.) to over 13% (California for high earners). Nine states have no income tax at all.
Social Security (FICA): 6.2% of wages up to $168,600 (2024 wage base). Your employer pays another 6.2%.
Medicare: 1.45% of all wages (no cap). An additional 0.9% applies to wages above $200,000 for single filers.
Pre-tax deductions (if applicable): 401(k) contributions, health insurance premiums, HSA contributions, FSA contributions, and other employer benefits are deducted before tax is calculated, reducing your taxable income.

Real Example: $75,000 Annual Salary

Single filer, California, $500/month 401(k), $200/month health insurance:

Gross annual income: $75,000
Pre-tax deductions: -$8,400/year (401k + health)
Federal income tax: ~-$8,700
California state tax: ~-$4,100
Social Security: -$4,650
Medicare: -$1,088
Net annual pay: ~$48,062 (~$4,005/month)

That's a 36% gap between gross and net — far more than most people expect when they're negotiating a salary.

Why Your Effective Tax Rate Is Lower Than Your Bracket

The US uses a progressive marginal tax system, meaning you don't pay your top bracket rate on all income — only on the portion that falls in that bracket. In 2025, a single filer earning $75,000 pays:

10% on the first $11,925 = $1,193
12% on $11,926–$48,475 = $4,386
22% on $48,476–$75,000 = $5,835
Total federal tax: ~$11,414 → Effective rate: 15.2%

Many people confuse their marginal rate (22%) with their effective rate (15.2%). Your effective rate is always lower than your top bracket.

How to Increase Your Take-Home Pay

Claim additional W-4 allowances if you expect a large refund (you're over-withholding)
Contribute to a pre-tax 401(k) to reduce taxable income
Use an HSA if you have a high-deductible health plan (triple tax advantage)
Negotiate a higher salary — gross income is the starting point for all these calculations

Use our free Take-Home Pay Calculator to estimate your exact net paycheck for any salary, filing status, state, and deduction combination.