How to Calculate Net Pay From Gross Pay (With a Worked Example)
Gross pay is what an employee earns before anything is taken out. Net pay, often called take-home pay, is what actually lands in their bank account. The difference is taxes and deductions, and getting it right every payday is the core of running payroll.
This guide shows the order of the calculation and walks through a full example.
The formula
Net pay = gross pay − pre-tax deductions − taxes − post-tax deductions
The order matters. Pre-tax deductions come out first because they lower the wages that income tax is calculated on.
Step 1: Find gross pay for the period
- Hourly employees: hours worked × hourly rate, plus overtime. Under federal law, overtime is usually 1.5 × the regular rate for hours over 40 in a workweek. Some states, such as California, also have daily overtime rules.
- Salaried employees: annual salary ÷ number of pay periods. That is 52 for weekly, 26 for biweekly, 24 for semi-monthly and 12 for monthly.
Add any bonuses, commissions or tips for the period.
Step 2: Subtract pre-tax deductions
Common pre-tax deductions include traditional 401(k) contributions, most employer health, dental and vision premiums, and HSA or FSA contributions. Be careful: 401(k) contributions reduce wages for income tax but not for Social Security and Medicare, while most cafeteria-plan (Section 125) health premiums reduce both.
Step 3: Calculate Social Security and Medicare (FICA)
- Social Security: 6.2% of wages, up to the annual wage base set by the Social Security Administration.
- Medicare: 1.45% of all wages, plus an Additional Medicare Tax of 0.9% on wages over $200,000 in the calendar year.
The employer pays a matching 6.2% and 1.45%, but only the employee's share is deducted from their pay.
Step 4: Calculate federal income tax withholding
Federal withholding depends on the employee's Form W-4 (filing status, multiple jobs, dependents and other adjustments) and the IRS Publication 15-T tables for the year. A common method is to annualize the period's taxable wages, subtract the standard deduction for the filing status, apply the tax brackets, subtract any W-4 credits and divide back down to one pay period.
If an employee hasn't given you a W-4, you can share our free W-4 form with them.
Step 5: Calculate state and local taxes
Most states have their own income tax with their own brackets, and a few add other payroll taxes, such as California's State Disability Insurance (SDI). Some cities and counties also have local income taxes. Nine states have no tax on wages at all, including Texas and Florida.
Step 6: Subtract post-tax deductions
These come out after taxes: Roth 401(k) contributions, wage garnishments, union dues and some insurance products. What is left is net pay.
Worked example: a biweekly paycheck in Texas
Maria earns $52,000 a year, is paid biweekly, files as single with a standard W-4, and has no other deductions. She works in Texas, so there is no state income tax.
| Line | Amount |
|---|---|
| Gross pay ($52,000 ÷ 26) | $2,000.00 |
| Social Security (6.2%) | −$124.00 |
| Medicare (1.45%) | −$29.00 |
| Federal income tax (approx., 2026 tables) | −$156.15 |
| Net pay | $1,690.85 |
Change one thing and the numbers change. A $100 pre-tax 401(k) contribution per paycheck would lower her federal income tax, but not her Social Security and Medicare. If she worked in California instead, state income tax and SDI would also be withheld.
Check your numbers quickly
You can try any salary or hourly rate in our state calculators, such as the Texas paycheck calculator, the California paycheck calculator or the New York paycheck calculator. When the numbers look right, the calculator can carry them straight into a pay stub with year-to-date totals, ready to download as a PDF. Your first two pay stubs are free.
Keep it consistent
Use the same method every payday, keep year-to-date totals running across the year, and update withholding as soon as an employee gives you a new W-4. If you're unsure about a specific tax rule, check the IRS and your state's revenue department, or ask a payroll professional.