Is Gross Pay Before Or After Taxes?

Gross pay is the hourly rate or salary that employees are paid before taxes and other withholdings are taken out of their paychecks.

As members of the United States workforce, employers and employees must understand their taxpaying responsibilities in relation to their work earnings, beginning with learning the difference between gross pay and net pay, or before-tax and after-tax earnings.


Key Takeaways:

  • Gross pay is an employee’s pay rate before taxes and other deductions have been withheld.
  • Net pay is the take-home compensation employees receive after all required and voluntary deductions have been subtracted from their gross pay.
  • Some of the common mandatory payroll deductions include federal, state, and local income taxes, wage garnishments, FICA taxes, W-4 form withholdings, health insurance premiums, and retirement plans. 
  • Examples of common voluntary payroll deductions include equipment or job uniform funds, union dues, pension plans, and health savings accounts.

Gross Pay Vs. Net Pay

What Is Gross Pay?

Gross pay describes the amount of money an employee is paid by their employer through their hourly wages or annual salary before any payroll deductions, including taxes, are withheld. While gross pay is the amount that a company pays their workers, due to the fact that gross pay is the payment amount before the calculation of withholdings is considered, this is not the value of earnings that they will receive on their paychecks.

When calculating gross pay, workers must consider all of their hourly or annual earnings, as well as any overtime pay they may have received.

What Is Net Pay?

Net pay describes the compensation that workers can take home after all payroll deductions have been withheld from their paychecks. 

When calculating net pay, taxpayers must first determine their gross pay, and then deduct any required or optional tax withholdings from that amount to reveal their net pay or take-home pay.

Common Deductions From Gross Pay

There are both voluntary and mandatory deductions that will be withheld from workers’ gross pay, leaving behind what they actually receive in their net income. Employers in a business will be responsible for deducting the relevant withholdings from their employee’s gross income so that the net earnings they earn in their checks are theirs to spend.

Mandatory Deductions:

  • Federal payroll taxes
  • State payroll taxes
  • Local payroll taxes
  • FICA taxes (Social Security and Medicare contributions)
  • IRS Form W-4, Employee’s Withholding Certificate
  • Health insurance premiums
  • Retirement contributions
  • Wage Garnishments

Voluntary Deductions:

  • Equipment or work uniform funds
  • Union dues
  • Pension plans
  • Health savings account (HSA)

If you need help with understanding tax withholdings, optimizing tax breaks related to your earnings, or preparing your federal income tax return, consulting with an expert at Ideal Tax will help you throughout the entire process. Schedule a free consultation with one of our tax experts today to get started on your tax-saving journey.

Author: Luis Ceja - Director of Operations
Author: Luis Ceja - Director of Operations

Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.

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