What you'll learn
- Compare gross and net pay
- Identify payroll deductions at a concept level
Gross pay is pay before deductions. Net pay is take-home pay after deductions. The difference can include income tax withholding, payroll taxes or contributions, benefits, retirement plan contributions, union dues, or other items depending on country, employer, and personal choices.
Why deductions happen
- Some deductions are required by law.
- Some pay for employee benefits.
- Some are voluntary savings or retirement contributions.
- Some correct prior payroll adjustments.
Keep this general
Tax and payroll rules vary by country and can change. This lesson explains concepts without using country-specific limits or brackets.
Example
A pay statement might show $3,000 gross pay and $2,350 net pay after taxes, benefits, and other deductions. The budget should usually be based on net pay.