tax
Gross vs. Net Income
Gross income is total earnings before any deductions. Net income is what remains after taxes, social contributions, and other withholdings are removed. Budgeting and borrowing decisions should always be based on net income.
A $90,000 US salary nets roughly $68,000 after federal income tax and FICA — the difference is significant for affordability calculations. Lenders use gross income for DTI ratios, but your actual available income is net.
Many first-time buyers make the mistake of calculating how much mortgage they can afford based on gross salary. The monthly payment must come from take-home pay, not gross pay.
Put this into practice with our free calculator:
Open calculator →Related terms
- Gross Income
- Gross income is your total income before any taxes, deductions, or withholdings. It is the starting figure used by lenders for DTI calculations and by tax authorities to determine your tax bracket.
- Net Income (Take-Home Pay)
- Net income is your earnings after all taxes and deductions have been removed. It is the amount that actually lands in your bank account — also called take-home pay.
- Effective Tax Rate
- Your effective tax rate is your total tax paid divided by your total income, expressed as a percentage. It is always lower than your marginal rate in a progressive tax system.
Frequently asked questions
What is Gross vs. Net Income?
Gross income is total earnings before any deductions. Net income is what remains after taxes, social contributions, and other withholdings are removed. Budgeting and borrowing decisions should always be based on net income.