Gross vs net pay: what each means, with a full 2026 paycheck

Gross pay is what you earn before anything comes out: your hours times your rate, plus any overtime, bonus or commission. Net pay is what lands in your bank account after taxes and deductions. So yes, gross pay is before taxes, and the gap between the two is bigger than most people guess. On a $25-an-hour biweekly paycheck in Illinois with a 5% 401(k), $2,000.00 gross becomes $1,514.37 net in 2026, about 76 cents on the dollar.

Every number an employer quotes you is gross. Every bill you pay comes out of net. Most budgeting trouble starts when people mix the two up, so below you'll find what each line on a pay stub means, the full arithmetic for that $25 paycheck, and the mistakes worth avoiding.

Where gross and net show up on a pay stub

A pay stub reads top to bottom like a subtraction problem. The first block is earnings: regular hours, overtime hours, holiday or PTO hours, each with a rate and an amount. Their total is gross pay, sometimes labeled "total earnings" or "gross wages." Next to it you'll usually see a year-to-date (YTD) column, which is the same figure summed across every check so far this year.

Below that come the deductions, and payroll software is not consistent with names. Social Security often appears as OASDI or FICA-SS, Medicare as FICA-Med or MED, federal income tax as FIT or Fed W/H, and state income tax as SIT or the state code. Pre-tax benefits like a 401(k) or health premium may sit in their own block. The last line, net pay, is what you're actually paid.

Many stubs also show a third number that causes confusion: federal taxable wages. That's gross minus any pre-tax deductions, and it's the figure that ends up in Box 1 of your W-2. If you contribute to a 401(k), your W-2 Box 1 will be lower than your total gross pay for the year, while Boxes 3 and 5 (Social Security and Medicare wages) will usually match gross. That's not an error. It reflects the fact that different deductions escape different taxes.

One 2026 paycheck from gross to net, line by line

Here's the setup: $25.00 an hour, 80 hours in a two-week period, paid biweekly (26 checks a year), single, a 2026 Form W-4 with nothing entered in Steps 2 through 4, living and working in Illinois with one allowance on Form IL-W-4, and a traditional 401(k) contribution of 5% of pay. No overtime, no health insurance, so every line is visible.

Line	How it's figured	Amount
Gross pay	$25.00 x 80 hours	$2,000.00
401(k), pre-tax	5% x $2,000.00	-$100.00
Federal income tax	$3,748.00 a year / 26	-$144.15
Social Security	6.2% x $2,000.00	-$124.00
Medicare	1.45% x $2,000.00	-$29.00
Illinois income tax	4.95% x ($1,900.00 - $112.50)	-$88.48
Net pay	$2,000.00 minus $485.63	$1,514.37

Federal income tax

The 401(k) comes off first, so federal taxable wages for this check are $2,000.00 - $100.00 = $1,900.00. Payroll annualizes that: $1,900.00 x 26 = $49,400.00. Subtract the 2026 standard deduction for a single filer, $16,100, and you get taxable income of $33,300.00. Apply the 2026 single brackets: 10% on the first $12,400 is $1,240.00, and 12% on the remaining $20,900.00 is $2,508.00. Annual tax: $3,748.00. Divided by 26 checks, that's $144.1538, or $144.15.

IRS Publication 15-T gets to the same place by a different road. Its annual percentage method subtracts $8,600 from annualized wages for a single filer who didn't check the Step 2 box ($49,400 - $8,600 = $40,800), then uses a withholding table whose 10% band starts at $7,500. Since $8,600 + $7,500 = $16,100, the standard deduction is simply split in two. The table gives $1,240 plus 12% of the amount over $19,900, which is $1,240 + $2,508 = $3,748. Same answer. Some employers round withholding to the whole dollar, which Pub 15-T permits, so your stub might say $144.

Social Security and Medicare

These two are flat and simple: 6.2% and 1.45% of wages, together called FICA. The detail people miss is that a traditional 401(k) does not reduce them. IRS Publication 15 treats elective deferrals as exempt from income tax withholding but taxable for Social Security and Medicare. So both are figured on the full $2,000.00: $124.00 and $29.00. Social Security stops once your 2026 wages pass $184,500, and an extra 0.9% Medicare kicks in above $200,000, neither of which touches this worker.

Illinois income tax

Illinois uses a flat 4.95% rate. Its 2026 exemption allowance is $2,925 per allowance claimed, which works out to $112.50 per biweekly check ($2,925 / 26). Because Illinois starts from federal wages, the 401(k) is excluded here too. The math: $1,900.00 - $112.50 = $1,787.50, and 4.95% of that is $88.48125, or $88.48. Over a full year that's $2,300.51, exactly 4.95% of ($49,400 - $2,925), so the paycheck withholding lines up with the actual state tax bill.

Add the deductions: $100.00 + $144.15 + $124.00 + $29.00 + $88.48 = $485.63. Net pay is $1,514.37, or 75.7% of gross. Spread over 80 hours, the $25.00 job pays $18.93 an hour into your account. The same check in a state with no income tax, such as Texas, would come to $1,602.85. To run your own numbers for any state, use the take-home pay calculator; the formulas behind it are on our methodology page.

Which deductions are pre-tax and which are post-tax

"Pre-tax" is shorthand, and it hides a real distinction: some deductions skip income tax only, some skip FICA too, and some skip nothing. Here's how the common ones behave on a federal paycheck.

Deduction	Federal income tax	Social Security and Medicare
Traditional 401(k), 403(b), 457(b)	Pre-tax	Taxed
Health, dental, vision premiums (Section 125 plan)	Pre-tax	Pre-tax
HSA through a cafeteria plan, health FSA	Pre-tax	Pre-tax
Roth 401(k)	Post-tax	Taxed
Garnishments, union dues, most voluntary insurance	Post-tax	Taxed

Health premiums run through a Section 125 cafeteria plan are the best deal on the stub, because they dodge all three federal taxes. A 401(k) dodges income tax only. States mostly follow the federal treatment, with exceptions worth knowing: Pennsylvania taxes your 401(k) contributions, and California and New Jersey tax HSA contributions.

What a pre-tax deduction really costs you is the amount minus the tax it saves. In the example, dropping the 401(k) would raise federal withholding to $156.15 and Illinois tax to $93.43, for net pay of $1,597.42. So the $100.00 that went into retirement reduced take-home by only $83.05. The other $16.95 is the 12% federal rate plus 4.95% Illinois rate on that $100. That's the honest way to evaluate a contribution: not "can I afford $100" but "can I afford $83."

Why the number on an offer letter is gross

An employer can't quote you a net figure, because it doesn't know it. Net depends on your W-4, your filing status, your state and city, whether you add a spouse to the health plan, and how much you put in a 401(k). Two people hired into the same role at the same $25 an hour can take home very different amounts. Gross is the only number that's the same for both of them, and it's the number the employer actually controls.

It's also the figure that drives everything else. Overtime is 1.5 times the gross regular rate, raises are a percentage of gross, and 401(k) matches are a percentage of gross. The employer also pays its own matching 7.65% in Social Security and Medicare on top of your gross, $153.00 on this paycheck, which never appears on your stub at all.

When you compare offers, compare gross first, then convert each to net yourself. An hourly offer of $25 is $52,000 a year at 2,080 hours, which you can check for any rate with the hourly to salary calculator. But if one job is in a state with no income tax or comes with cheaper health premiums, the lower gross offer can put more in your pocket.

Mistakes people make when budgeting from gross

The biggest one is just using the wrong number. $52,000 a year sounds like $4,333.33 a month. But two biweekly checks of $1,514.37 are $3,028.74, a gap of $1,304.59. Rent approved at "three times monthly income" based on gross can eat far more than a third of what you actually receive.

A few others come up again and again:

• Treating biweekly as twice a month. Biweekly means 26 checks, not 24, so two months a year have three paydays. If your first 2026 payday was Friday, January 2, those months are January and July; if it was January 9, they're May and October. Budget on two checks and treat the third as a bonus. Our biweekly vs semimonthly guide covers the difference.
• Counting a raise at face value. A $1-an-hour raise is $80 more gross per two-week check here. With 12% federal, 7.65% FICA and 4.95% Illinois tax, about $60.32 of it reaches you, or roughly $57 in the bank if the 5% 401(k) takes its share.
• Expecting new deductions on the paycheck. The 2025-2028 federal deductions for qualified overtime and tips are claimed on your tax return. Payroll does not take them off each check by default, so your overtime check looks fully taxed even if part of it comes back at filing time.
• Calling the refund a raise. A big April refund means you overpaid all year. That's money you could have had in each net paycheck, not extra pay.

The fix is boring and it works: build the budget from the net figure on an actual pay stub, not from the offer letter, and recheck it in January, when tax tables, benefit premiums and contribution elections tend to change at once.

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