Gross vs Net Income: The 20 Questions We Get Asked Most

Gross income is before taxes. It is the full amount you earn before any deductions, withholdings, or taxes are removed. On a W-2 paystub, gross pay is your complete salary or hourly earnings for the pay period. For a business, gross income (gross profit) is revenue minus cost of goods sold - before operating expenses or taxes.

Net income is after taxes. For a W-2 worker, net income is gross pay minus federal tax, state tax, Social Security, Medicare, and any pre-tax deductions. What lands in your bank account is net income. For a business, net income is the bottom line after COGS, operating expenses, interest, depreciation, and income tax.

'Net' on a paycheck means the amount you actually receive after all withholdings have been subtracted from gross pay. Withholdings include federal income tax, state income tax (in most states), Social Security tax (6.2% up to $184,500 in 2026), Medicare tax (1.45% uncapped), and any pre-tax benefit deductions. Net pay is sometimes called take-home pay or after-tax pay.

For a business, yes - net income and net profit are synonyms. Both mean the bottom line of the P&L: revenue minus all expenses minus tax. For an individual, net income is your take-home pay, not 'profit' in the business sense. If you are a sole proprietor, your Schedule C net income is effectively your business profit.

For a business, gross income (gross profit) is not the same as revenue. Revenue is the top line (total money received). Gross profit is revenue minus cost of goods sold. A business might have $1M revenue but only $600k gross profit after $400k COGS. For an individual, gross income generally means total income from all sources - wages, interest, dividends, etc. - which is analogous to revenue for a business.

It depends on context. On a paystub, net income is per pay period (bi-weekly, monthly, etc.). On a W-2 or Form 1040, income figures are annual. On a business P&L, net income covers whatever period the statement describes. When someone asks 'what is your net income?' in a loan or rent application, they almost always mean annual gross income.

Like net income, gross income can refer to any period. Annual gross income is your full-year earnings before deductions. Monthly gross income is that annual figure divided by 12. Bi-weekly gross income is the full salary for each pay period. Most applications (loans, rentals, SNAP, Medicaid) ask for annual or monthly gross income specifically.

Multiply your hourly rate by weekly hours, then by 52 weeks. Example: $25/hour x 40 hours/week x 52 = $52,000 annual gross. For overtime, add overtime hours at 1.5x rate. Part-time at 20 hours: $25 x 20 x 52 = $26,000. This is your gross annual income before any taxes or deductions.

There is no single formula because monthly net depends on your state, filing status, pre-tax deductions, and other factors. As a rough estimate: for most US workers earning $60k-$120k, monthly net is 70-80% of monthly gross. Use the calculator at /calculator-personal for an accurate estimate. For $90k annual gross in Texas, monthly gross is $7,500 and estimated monthly net is $5,550-$5,700.

Job offer letters always state annual gross salary. When the offer says '$85,000 per year,' that is your annual gross income. Your actual paycheck gross is that amount divided by your pay frequency (divide by 26 for bi-weekly, by 24 for semi-monthly, by 12 for monthly). Your net paycheck will be considerably less after taxes and deductions.

A W-2 does not show net income directly. Box 1 shows taxable wages (which is less than gross salary due to pre-tax deductions). Your net income for the year is approximately: Box 1 minus Box 2 (federal tax withheld) minus Box 4 (SS tax) minus Box 6 (Medicare tax) minus Box 17 (state tax). For the exact annual net, look at your final paystub's YTD Net column. See /on-w-2 for the full W-2 walkthrough.

A 1099-NEC or 1099-MISC does not show net income - it shows gross payments made to you. Your net income from self-employment is calculated on Schedule C: gross revenue minus business expenses equals net SE earnings. You then pay self-employment tax (15.3% on 92.35% of net earnings) plus income tax. See /on-1099 for the full walkthrough.

Box 1 (Wages, Tips, Other Compensation) is your federal taxable wages for the year. It equals your gross salary minus pre-tax deductions that reduce federal income tax: traditional 401(k) contributions, HSA contributions via Section 125, health insurance premiums, FSA contributions. Box 1 is typically lower than your gross salary, and it is the wage figure used to calculate federal income tax withholding.

Form 1040 does not have a 'net income' line. The closest equivalents are: Line 11 (Adjusted Gross Income), Line 15 (Taxable Income), and Line 24 (Total Tax). After subtracting Line 24 from your gross income and adding back any refundable credits, you arrive at your annual after-tax income. But this is an annual tax concept, not the same as take-home pay (which is a paycheck concept).

On a profit and loss statement (income statement), net income is the very last line: revenue minus COGS minus operating expenses minus depreciation minus interest minus income tax. It is also called net profit or 'the bottom line.' Net income flows directly into retained earnings on the balance sheet. For a business with $500k revenue and a 24% net margin, net income is $120,000.

Virtually all US landlords use gross monthly income. The standard rule is 3x monthly rent in gross income. A $2,500/month apartment requires $7,500 gross monthly income ($90,000 annual). Self-employed tenants are usually evaluated on net Schedule C income from two years of tax returns. See /for-rent-applications for the full breakdown including NYC, Section 8, and guarantor rules.

Fannie Mae, Freddie Mac, FHA, VA, and USDA all calculate debt-to-income ratio (DTI) on gross monthly income. Self-employed borrowers are evaluated on two-year average net Schedule C or K-1 income. The Fannie/Freddie back-end DTI maximum is 36-45%. A $7,500 gross monthly income at 43% DTI supports $3,225/month in total debt payments. See /for-loans for full DTI tables.

These are different concepts entirely. AGI (Adjusted Gross Income) is a tax concept: Form 1040 Line 11, your gross income minus above-the-line adjustments like IRA contributions and student loan interest. It is pre-tax. Net income (take-home pay) is a cash concept: gross pay minus all withholding and deductions, what arrives in your bank account. Your AGI can be $85,000 while your net take-home is $60,000. See /vs-agi for the full explanation.

Gross profit is revenue minus cost of goods sold only. Net profit (net income) is the bottom line after all expenses: COGS plus operating expenses plus interest plus depreciation plus tax. A restaurant with $1.2M revenue might have $883k gross profit (73.6% margin) but only $129k net profit (10.7% margin) after labour, rent, utilities, and tax. See /vs-profit for gross profit vs operating income vs EBITDA vs net income.

For a W-2 employee with one job and no other income, yes - net income and take-home pay are the same: the amount deposited each pay period. For self-employed people or those with multiple income sources, they differ: take-home is informal and cash-based; net income is calculated annually on a tax return. See /vs-take-home-pay for the full breakdown and the brutto/netto note for international readers.