You just landed a job that pays $75,000 a year. That sounds great… until you see your paycheck. Where did all the money go?
The answer lies in one of the most misunderstood concepts in personal finance: the difference between gross pay and net (take-home) pay.
What Is Gross Pay?
Gross pay is your total earnings before any deductions. It's the full amount your employer agrees to pay you, and the number you'll often see in job offers and salary negotiations.
If your job pays $75,000 a year, that's your gross salary.
What Is Net (Take-Home) Pay?
Net pay is what you actually receive in your bank account. It's your gross pay minus taxes, Social Security, Medicare, health insurance, retirement contributions, and other deductions.
In most cases, your take-home pay is 20% to 30% lower than your gross pay.
Why the Difference Matters
Many people create budgets or make financial decisions based on their gross income. But this leads to overspending and frustration when there's "less money than expected."
Pro tip: Always budget based on your net income. That's the money you actually control.
Common Deductions That Shrink Your Paycheck
- Federal Income Tax: Based on tax brackets and your filing status
- State Income Tax: Not all states have this (Texas, Florida, and others don't)
- Social Security: 6.2% of your gross pay (up to $160,200 in 2025)
- Medicare: 1.45% of your gross pay
- Health Insurance: Varies by employer and plan
- 401(k) Contributions: If you participate in your employer's retirement plan
- Other Benefits: Life insurance, disability, FSA/HSA contributions
Real Example: $75,000 Salary Breakdown
Let's see what a $75,000 salary actually looks like in your bank account (single filer, no state income tax):
- Gross Annual Salary: $75,000
- Federal Income Tax: ~$9,800
- Social Security & Medicare: ~$5,740
- Health Insurance (estimate): ~$2,400
- Net Take-Home Pay: ~$57,060 ($4,755/month)
That's about $18,000 less than your gross salary!
How to Calculate Your Own Take-Home Pay
The easiest way to know exactly what you'll take home is to use a paycheck calculator. These tools account for your specific situation, including:
- Your state's tax rates
- Filing status (single, married, etc.)
- Number of allowances/dependents
- Pre-tax deductions
State-by-State Differences
Where you live makes a huge difference in your take-home pay. States like Texas and Florida have no income tax, while states like California and New York can take a significant chunk.
Use our state-specific calculators to see exactly how much you'll keep:
- Texas Paycheck Calculator (No state tax)
- California Paycheck Calculator
- New York Paycheck Calculator
- View All State Calculators
The Bottom Line
Understanding the difference between gross and net pay is crucial for smart financial planning. Always budget based on your take-home pay, not your gross salary.
When comparing job offers, don't just look at the gross salary—calculate the net pay for each location to make the best decision.
Want to know your exact take-home pay? Try our free paycheck calculator to get personalized results for your state and situation.