What's the Difference Between Gross Pay and Net Pay?

Gross pay and net pay are both ways of describing your earnings, but they represent very different amounts. Gross pay is your total compensation before any deductions — it's the salary or hourly rate you agreed to with your employer before anything is taken out. Net pay is what actually lands in your bank account after taxes, Social Security and Medicare contributions, health insurance premiums, retirement plan contributions, and any other deductions have been subtracted. For a typical employee, the gap between gross and net pay can be 25% to 40% or more depending on their tax bracket and benefit elections. When budgeting or negotiating salary, it's important to think in terms of net pay, since that's the money you actually have available to spend.