Gross pay vs net pay
Gross pay is the wage before anything is taken out. Net pay is what lands in the account after FICA and income-tax withholding. On a $2,000 weekly check with 12 percent federal withholding and no state tax, FICA is $153 and take-home is $1,607.
| Gross pay | Net pay | |
|---|---|---|
| What it measures | The wage before statutory and elected deductions. | What remains after FICA and income-tax withholding on this check. |
| On a \$2,000 weekly check, 12 percent federal, no state | $2,000. | $1,607, which is 80.35 percent of gross. FICA is $153 of the gap. |
| Does FICA sit inside it | No. FICA is taken out of gross. | Yes, as a subtraction. Social Security 6.2 percent and Medicare 1.45 percent on this teaching sheet. |
| What a lender usually wants | Gross, because debt-to-income is written on gross monthly income. | Not this. A budget that spends net as if it were gross overstates what the account can do. |
| What a 50/30/20 split should run on | Not this. Percents of gross print buckets the account will never see. | Take-home. The 50/30/20 page splits net, not gross. |
| Is it the tax bill | No. It is the starting wage. | No. Withholding is an estimate sent in during the year, not the return. |
The same check, two readings
Gross is the offer. Net is the deposit. They part at FICA and at withholding, and they part further if a state line is in play.
On a $2,000 weekly check, 52 times a year, annual gross is $104,000. Social Security is 6.2 percent of this check while it sits under the wage base: $124. Medicare is 1.45 percent: $29. FICA is $153. Twelve percent federal withholding is $240. State is $0. Take-home is $1,607.
That $1,607 is 80.35 percent of gross. The paycheck calculator is this split as a tool. Adding 5 percent state withholding takes another $100 and leaves $1,507, which is 75.35 percent. FICA did not change.
Which one a plan should use
A budget spends net. A 50/30/20 split that runs on gross will print a saving line the account cannot fund. A debt-to-income ratio does the opposite on purpose: lenders write it on gross, so that page does too.
Mixing the two is how a household plans from the offer letter and then runs out of money on Friday. The effective tax rate and the marginal tax rate are a third and fourth object again: they describe the return, not this check's withholding.
This is educational material, not financial advice, and it is not a substitute for a payroll system or a tax return.
Worked examples
A \$2,000 weekly check, 12 percent federal, no state
Gross pay is $2,000 a week, 52 checks a year. Federal withholding is 12 percent, state is 0, wage base $168,600. What is take-home?
- FICA is $153: Social Security $124 plus Medicare $29.
- Federal withholding is $240. State is $0.
- Take-home: , so $1,607, which is 80.35 percent of gross.
Gross is $2,000. Net is $1,607. FICA is $153. Annual gross is $104,000.
The same check with 5 percent state tax
Keep the $2,000 weekly check, 12 percent federal, and the $168,600 wage base. Add 5 percent state withholding.
- FICA is still $153. Federal withholding is still $240.
- State withholding: , so $100.
- Take-home: , so $1,507, which is 75.35 percent of gross.
Net falls to $1,507. The $100 gap is the state line. FICA is still $153.
Common questions
Is net pay my tax rate?
No. Net is what is left after FICA and withholding on this check. The tax bill is settled on a return. Withholding can be high or low against that bill without FICA having moved.
Why does a lender want gross?
Debt-to-income is a lending convention written on gross monthly income. A budget is a household convention written on take-home. Using one number for both jobs is how the two questions get mixed.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.