Last updated: April 2026 · Data: IRS, BLS, state sources
Gross income is your total earnings before any taxes or deductions. It includes wages, salaries, tips, bonuses, investment income, rental income, and all other sources of income. For employees, gross income is the salary listed in your offer letter or the total shown at the top of your pay stub before deductions.
Net income is what remains after all taxes and deductions are subtracted. For employees, net income is your take-home pay. For businesses, net income is profit after all expenses, taxes, and costs are deducted from revenue.
The distinction matters because gross income is used for tax calculations (determining your bracket, FICA base, and eligibility thresholds), while net income is what you actually have available to spend, save, and invest.
| Item | Amount |
|---|---|
| Gross Annual Income | $85,000 |
| Federal Income Tax | -$10,500 |
| State Income Tax (Oregon) | -$4,200 |
| Social Security (6.2%) | -$5,270 |
| Medicare (1.45%) | -$1,233 |
| 401(k) Contribution | -$6,000 |
| Health Insurance | -$3,600 |
| Net Income (Take-Home) | $54,197 |
In this example, the worker keeps about 64% of gross income as net pay. The 36% difference goes to taxes, retirement savings, and benefits. Note that the 401(k) contribution, while reducing net pay, is still your money growing in a retirement account.