Gross vs. Net Income | Meaning and Definition

What is the difference between Gross and Net Salary?

Both the types of incomes present a comparison between the sum/payment that an employee receives from the employer and the amount that is taken home by the employee after subtracting the reductions and deductions from it. The former represents the gross salary, whereas the latter represents the net salary. The difference is usually seen in the employees’ pay stubs, and it can be calculated through the figures from time to time which acts as an assurance to the employees that they are being paid as per their work.

Calculation of Gross Income

A breakdown of the gross pay is displayed on each pay stub, categorically that consists of reimbursements and bonus pay apart from the regular income. The individuals who are paid on an hourly basis have a clear distinction between their hours of work as well as their rates on their paycheck.

Calculation of Income Deductions

After the gross salary is calculated, the net salary is estimated through steps of calculations, which is after mandatory deductions are made from the pay stubs of each of the employees. The various deductions consist of:

  • Vision benefit, dental, and medical deductions.
  • State income tax and federal withholdings.
  • Deductions include Medicare and social security, that is, FICA tax withholdings.
  • Payments for wage garnishment.
  • Retirement plans fund.
  • Savings or deductions for charitable causes and organizations.

Each of these deductions should be mentioned clearly on the pay stub to create a distinction between the gross income and net income. Subtracting the total deductions from gross income gives the net salary. The employees can cross-check their final income/take-home salary if they can find their gross income and net income and the deductions on their pay stubs.