Gross vs. Net Income: What’s The Difference? Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: Portra/Getty Images November 04, 2021 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Sean Jackson is a creative copywriter living in Florida. He’s written articles for Realtor.com, CNET and ZDNet. Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. While both gross and net income refer to the money you earn, there are key differences: is the money you earn from your hourly wages, salary, commissions, and bonuses. is the money you’re left with after taxes are paid and any deductions for health insurance or other benefits are taken. . Gross income details How it works
Your gross income is the total amount of money you earn. If, for example, you earn a gross salary of $52,000 a year, and your company pays you on a weekly basis, your gross income is $1,000 a week. If you receive an hourly wage, you can calculate your gross income by multiplying the number of hours worked in your payroll period by your hourly wage. For example: If you earn $13.50 an hour, you work 24 hours a week and you receive a paycheck every two weeks, your gross income per pay period is $648 (or $13.50 multiplied by 48 hours). Net income details How it works
Your net income is your gross income minus everything that your employer or the government withholds from your paycheck.. Net income is commonly referred to as take-home pay. When your employer processes payroll, deductions will be made for federal and state and local taxes, Social Security and Medicare. If you’re , you’re responsible for paying these taxes on your own, usually every quarter. The amount left after taxes is your net income. You may also have other deductions that leave you with a lower net income. Some of the most common deductions include premiums for dental, vision, short-term disability and health insurance. There are also retirement plan contributions if you participate in your employer’s retirement plan. Here’s how you can calculate your net income: If you earn a gross income of $1,000 a week and have $300 in withholdings (accounting for taxes and other deductions), your net income will be $700. The same applies to hourly employees. You can take your gross earnings, subtract any pretax deductions, then multiply the remainder by one minus the tax rate you pay (the Federal Insurance Contributions Act, or FICA, tax rate, which consists of Social Security and Medicare taxes, is 15.3 percent). Therefore, if you earn $648, you only pay FICA taxes, and have no other deductions, your net income will be $548.86 (or $648 multiplied by 1 minus the 15.3 percent tax rate). How gross and net income can impact your budget
The higher your gross income, the higher your will be, depending on your marital status, deductions and other qualifying credits. Gross income might also affect how you invest your money. Many employers offer retirement plans where you can contribute by having deductions made from each paycheck. Some of these contributions are pretax, giving you the advantage of saving for retirement while lowering your tax liability. Say you earn $1,000 each paycheck and contribute 4 percent of your earnings (pretax) to your employer’s . That’s 4 percent you don’t need to pay taxes on now since you are devoting these funds to investing for your golden years. Meanwhile, net income refers to your take-home pay. This is the income you use when budgeting and will help you determine how much money you have available for necessities such as or rent, utilities, and , groceries and car payments. You can to categorize your spending transactions, identify ways to cut back and improve your financial health. Your net income also acts as an indicator of the state of your finances. After you factor in all necessary expenses, the remainder is your discretionary income. You can use your discretionary income to , , , or for travel and entertainment. Steps you can take
If you don’t have much net income remaining after your necessary expenses, there are a few things you can do. First, with your employer. When starting a salaried job, you will need to complete a Form W-4, known as the Employee’s Withholding Certificate. This form helps employers determine how much to withhold for your taxes. When you have a major change in your life, such as having a baby or becoming the head of a household, you should . Doing so ensures the right amount of taxes are being taken from your paycheck. Adding a new dependent could reduce the amount of taxes you pay, therefore increasing your net income, for example. Another option is to consider what benefits are deducted from your paycheck. Each year, your employer has an open enrollment period, where you can make changes to your insurance. You can also decrease or based on how much money you have remaining after deducting necessary expenses from your net income. It makes sense to withhold the maximum amount you can contribute to , as this both lowers your taxes and helps you build a nest egg for your retirement. Learn more
SHARE: Sean Jackson is a creative copywriter living in Florida. He’s written articles for Realtor.com, CNET and ZDNet. Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Related Articles