Net pay
Net pay is the amount an employee receives by paycheck or direct deposit after every tax and deduction is subtracted from gross pay.
Net pay, sometimes called take-home pay, is the final total on the pay stub and is usually lower than gross payGross pay. Gross pay is the total amount an employee earns in a pay period before taxes, benefits, and other deductions are subtracted.Click to open the term. Employer-side taxes are calculated separately and generally do not reduce it. Net pay can shift between pay periodsPay period. A pay period is the recurring block of time, such as a week or a month, for which you calculate and pay wages.Click to open the term even when gross pay stays the same, usually because withholding elections or benefit deductions changed. When deductions and withholding exceed gross wages, the result is negative net pay. Payroll cannot issue a negative check, so you resolve the shortfall before approval, through deduction priorityDeduction priority. Deduction priority is the order a payroll system applies deductions when an employee’s wages cannot cover every one of them.Click to open the term or arrears.
How is net pay calculated?
Pre-tax deductions lower taxable wages for some taxes but not all. A traditional 401(k)401(k). A 401(k) is an employer-sponsored retirement plan funded through payroll deferrals the employee elects, usually alongside an employer contribution.Click to open the term deferral lowers income tax wages but not FICAFICA. FICA is the federal law, and the payroll tax under it, that funds Social Security and Medicare through matching employee and employer shares.Click to open the term wages. Court-ordered amounts take their size and priority from the order and from federal and state law, not from one universal sequence. Errors in gross pay, such as an overtime miscalculation across multiple pay rates, carry straight through to the paycheck. The pay statementPay statement (pay stub). A pay statement, also called a pay stub, is the per-payroll record showing how one payment was calculated, from gross pay to net pay.Click to open the term itemizes each subtraction so an employee can trace gross pay to net pay.
- =Gross payPayroll gross, the pool each tax narrows to its own taxable wages
- −Pre-tax deductionsSection 125 health premiums, traditional 401(k) contributions
- −Employee taxesFederal income tax from the period’s wages and Form W-4; FICA at 6.2% Social Security up to the wage base limit and 1.45% Medicare, plus 0.9% Additional Medicare Tax once wages pass $200,000 in a calendar year; state or local income tax
- −After-tax deductionsRoth contributions, child support, wage garnishments
- =Net payPaid by paycheck or direct deposit
- Publication 15 (2026), (Circular E), Employer’s Tax Guide
- IRS Topic no. 751, Social Security and Medicare withholding rates
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.