What is the difference between net pay and gross pay?

The difference between net pay and gross pay is the amount that is taken out of the wages for taxes, benefits and other voluntary deductions. Net pay is the amount that an employee takes home after deductions. Gross pay is the amount that the employee actually earns.

In addition to federal income tax, some states may also require income tax to be deducted from wages. A small percentage is taken out for Social Security, disability contributions and medical benefits if it applies. Some people may choose to also have retirement contributions or payments for additional insurance plans or flexible spending accounts deducted directly from their paychecks.