Gross vs net income
Gross income is what you earn before deductions; net income is what actually arrives in your bank account.
Gross income is the headline number — the salary on the offer letter, the revenue on the invoice. Before tax. Before any deduction.
Net income is what's left after everything's been taken out: income tax, payroll tax, health insurance, retirement contributions, anything else withheld by an employer. For a business, net income subtracts cost of goods sold and operating expenses from revenue.
The difference is bigger than most people remember. A $100,000 gross salary in a high-tax US state with a 401(k) contribution and health insurance can land near $5,500–6,000 a month in take-home — a 70% effective conversion at best, often less.
Always budget on net. Always plan retirement contributions as a percentage of gross (because they come out pre-tax in most cases, distorting the math otherwise). Tools that mix the two — talking about "income" without specifying which — are the source of half the personal-finance confusion in the world.
See also
- Take-home pay — The money that actually lands in your bank account after taxes, retirement contributions, and other paycheck deductions.
- Marginal vs effective tax rate — Marginal rate is the rate on your next dollar of income; effective rate is the average rate across all your income.
- Pre-tax vs post-tax contributions — Pre-tax contributions reduce your taxable income now but are taxed at withdrawal. Post-tax (Roth) contributions don't reduce taxes now but are tax-free at withdrawal.
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