General tax and payroll information. Confirm specifics with a CPA or EA. Data verified April 2026.

Gross vs Net Income: Two Definitions, One Site

Pick your track. Personal (reading your paystub) or Business (reading your P&L) and we will get you to the right number.

Personal Track

Reading your paystub

Gross Pay$3,461.54
Federal Tax-$415.00
Social Security-$214.62
Medicare-$50.19
401(k) Pre-tax-$173.08
Health Premium-$90.00
Net Pay$2,518.65

Business Track

Reading your P&L

Revenue$500,000
COGS-$200,000
Gross Profit$300,000
Operating Expenses-$150,000
Operating Income$150,000
Tax-$31,500
Net Income$118,500

Both bottom lines are called “Net Income” - but they are calculated completely differently.

Personal Track - I'm reading a paystubBusiness Track - I'm reading a P&L
Last verified April 20262026 SS wage base: $184,500Medicare: 1.45% no capAdd'l Medicare 0.9%: above $200k single / $250k MFJ

WHICH DEFINITION APPLIES TO YOU?

W-2 Employee

Reading your paystub or first paycheck

Go to guide →

Freelancer / 1099

Self-employed, paying SE tax quarterly

Go to guide →

Business Owner

Reading a P&L or income statement

Go to guide →

Loan or Rent Application

Do they want gross or net on the form?

Go to guide →

THE 60-SECOND ANSWER

Personal Track

Gross income is the money you earn before any tax or deduction - the top line of your paystub or your annual salary. Net income (also called net pay, take-home pay) is what lands in your bank account after federal tax, state tax, Social Security (6.2% on the first $184,500 in 2026), Medicare (1.45% with no cap), and any pre-tax deductions such as 401(k), HSA, and health insurance premium. For most US workers earning $60k to $100k, the gap between gross and net is 20 to 30%.

Business Track

Gross income (gross profit) is revenue minus cost of goods sold only. Net income is the bottom line after every expense: COGS, operating expenses, interest, depreciation, and income tax. For a SaaS at scale, net income may be 20 to 25% of revenue; for a restaurant, 5 to 10%; for a consultancy, 20 to 40%. The P&L waterfall from revenue to net income passes through gross profit, operating income, and pre-tax income - each a different number with a different meaning.

THE FOUR MOST CONFUSED PAIRS

Gross Income vs AGI

Form 1040 Line 11 - what above-the-line adjustments change

Read guide →

Gross vs Taxable Income

AGI minus the standard or itemised deduction (Line 15)

Read guide →

Gross Profit vs Net Profit vs EBITDA

Four different profit measures on one P&L

Read guide →

Net Income vs Take-Home Pay

Synonyms for W-2 workers; not synonyms for self-employed

Read guide →

DATA FRESHNESS - APRIL 2026

“The Social Security wage base in 2026 is $184,500, not $168,600 - most online articles are two years out of date.”

2026 SS Wage Base

$184,500

SSA, Oct 2025 announcement

Social Security Rate

6.2%

Employee portion; employer matches

Medicare Rate

1.45%

No wage cap - applies to every dollar

Additional Medicare

0.9%

Above $200k single / $250k MFJ

Federal Brackets

10-37%

2026 rates; ranges on /personal

C-Corp Rate

21%

Flat TCJA rate, permanent

Frequently Asked Questions

Is net income before or after taxes?
Net income is always after taxes. Whether you are looking at a paystub or a business P&L, net is the bottom line after every deduction, withholding, and tax has been applied. Gross is the top-line number before anything is taken out. If someone says 'net' and means 'before tax', they are misusing the term.
Is gross income before or after taxes?
Gross income is before taxes. On a paystub, gross pay is your full salary or wages before federal tax, state tax, Social Security (6.2% up to $184,500 in 2026), Medicare (1.45%), or any deductions. For a business, gross income (gross profit) is revenue minus cost of goods sold only, before operating expenses or income tax.
Is net income monthly or yearly?
It depends on the context. On a paystub, net income is per pay period (weekly, bi-weekly, or monthly). On a W-2 or Form 1040, income figures are annual. On a business P&L, net income covers whatever period the statement describes - monthly, quarterly, or annual. Always check the period header on any document.
What is the difference between net income and take-home pay?
For a W-2 employee with no other income, they are the same thing: the amount that lands in your bank account each pay period. The distinction matters for self-employed people: take-home pay is an informal cash concept tied to a pay period, while net income on a tax return is an annual figure calculated after SE tax and above-the-line deductions.
What is the difference between gross income and AGI?
Gross income is everything you earned from all sources. AGI (Adjusted Gross Income) is Form 1040 Line 11 - gross income minus specific above-the-line adjustments like traditional IRA contributions, student loan interest, HSA deductions, half of self-employment tax, and self-employed health insurance premiums. Your AGI is almost always lower than your gross income.
Why is my W-2 Box 1 different from my gross salary?
Because pre-tax deductions reduce Box 1. Traditional 401(k) contributions, HSA contributions via a Section 125 plan, health insurance premiums, and FSA contributions all reduce your Box 1 wages but not necessarily your Social Security wages (Box 3) or Medicare wages (Box 5). A $100k salary with $8k 401(k) will show Box 1 as $92k.
What is net income for a business?
Business net income is the bottom line of a profit and loss statement: revenue minus COGS minus operating expenses minus interest minus taxes. It is also called net profit. A $1M revenue business with a 10% net margin has $100k net income. Net income feeds directly into retained earnings on the balance sheet.
What does 'net' mean on a paycheck?
On a paycheck, 'net' is the amount you actually receive after all withholdings: federal income tax, state income tax, Social Security tax (6.2%), Medicare tax (1.45%), and any pre-tax deductions like 401(k), health insurance, or HSA contributions. For a $3,461 bi-weekly gross paycheck, a typical Texas resident might net around $2,580 to $2,700.

CALCULATORS AND CROSS-PORTFOLIO GUIDES

Personal Take-Home Calculator

Enter gross salary, state, filing status. Get net pay using 2026 brackets.

Business P&L Calculator

Revenue to net income with gross profit, operating income, and EBITDA.

Income Tax by State

Full brackets for all 50 states at incometaxbystate.com

LLC vs S-Corp

How entity structure changes your net income at llcvsscorp.com

Payroll Software Guide

Running your own payroll? Find the best software at bestpayrollsoftwareforsmallbusiness.com

Best Business Checking

Where does net income actually land? bestbusinesscheckingaccount.com

Updated 2026-04-27