A gap compensated torque sensing system and methods for using the same are provided. The system can include a sensor head in communication with a controller. The sensor head can contain a torque sensor and a proximity sensor coupled to the sensor head. The torque and proximity sensors can each sense magnetic fluxes passing through the target and a gap between the sensor head and the target. The controller can estimate torque applied to the target from magnetic fluxes sensed by the torque sensor. The controller can determine an improved gap measurement that is independent of electromagnetic properties of the target from magnetic fluxes sensed by the torque and proximity sensors. The estimated torque can be modified by the improved gap measurement to compensate for changes in magnetic properties of the target due to variations in the gap. In this manner, the accuracy of the torque measurements can be increased.