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Updated on April 5, 2022
Gross pay – or gross wages or gross income – is the salary or hourly rate an employer pays an employee. It reflects an employee’s total earnings in a pay period before deductions, such as local, state, and federal taxes.
Generally, federal and state taxes, and sometimes local taxes, reduce gross pay. Voluntary and involuntary deductions like medical benefits and insurances, or garnishments and levies can affect gross pay as well. The result is called net pay.
There are situations where the total of an employee’s taxes and deductions may be greater than their gross wages, resulting in negative net pay. This can leave employers with the task of figuring out which deductions are allowed to be reduced in order to reach a zero paycheck. Accountants and payroll services are generally an employer’s best bet for being prepared for complications such as this.
“I set my 401(k) contribution to 20% of my gross pay, which does make for a very strict budget, but it’ll pay off when I’m ready to retire.”
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