Why Gross Income And Net Income Are Different

Gross income is the amount earned before certain taxes, deductions, or other withholdings are removed. Net income is the amount that remains after deductions. Understanding the difference is important when creating a realistic budget. Someone may have a high annual salary but receive a smaller amount in each paycheck after taxes, insurance, retirement contributions, and other deductions. When planning monthly expenses, it is generally more useful to focus on the money actually available for spending and saving. Understanding your pay statements can help you make more accurate financial decisions and avoid budgeting based on money you never receive.

More information: U.S. Bureau of Labor Statistics: Earnings Data