Gross Salary vs Net Salary: What's the Real Difference

When discussing salary, two terms come up constantly: gross and net. Understanding the difference between them is essential for budgeting, comparing job offers, and planning your finances.

What Is Gross Salary?

Gross salary is the total amount your employer agrees to pay you before any deductions. This is the number you typically see in:

• Job offer letters
• Employment contracts
• Annual salary discussions
• The top line of your pay stub

If a job posting says "$60,000 per year," that's the gross salary. It includes all your compensation before taxes and other deductions are taken out.

What Is Net Salary?

Net salary—also called take-home pay—is the amount that actually gets deposited into your bank account. It's your gross salary minus all mandatory and voluntary deductions.

This is the money you can actually spend on rent, groceries, savings, and everything else in your life.

What Gets Deducted From Your Paycheck?

Several types of deductions reduce your gross salary to arrive at your net pay:

Mandatory Deductions

Voluntary Deductions (Pre-Tax)

• 401(k) or 403(b) retirement contributions
• Health insurance premiums
• Dental and vision insurance
• Health Savings Account (HSA) contributions
• Flexible Spending Account (FSA) contributions
• Commuter benefits

Real-World Example

Here's how gross and net salary compare for someone earning $80,000 in California:

In this example, about 24.6% of gross salary goes to taxes. The person keeps 75.4% of their earnings.

Why Net Salary Matters More

While gross salary sounds impressive, net salary is what determines your actual standard of living:

• Budgeting: You can only spend what you actually receive
• Rent calculations: Landlords often want rent to be 30% of your gross, but you pay from net
• Job comparisons: A higher gross in a high-tax state may mean lower net than a lower gross in a no-tax state
• Financial planning: Savings goals should be based on net income

Gross vs Net: Quick Reference