Take-Home Pay

Take-Home Pay: Definition and Why It Matters

What is take-home pay?

Take-home pay (net pay) is the amount an employee actually receives after all deductions are subtracted from gross pay. Gross pay is the total earnings for a pay period; take-home pay is what remains after taxes, benefits, and other withholdings.

Take-home pay = Gross pay − Deductions

Common deductions

Typical items deducted from gross pay include:
* Federal, state, and local income taxes
* Social Security and Medicare (FICA) withholdings
* Retirement plan contributions (401(k), etc.)
* Health, dental, vision, and other insurance premiums
* Court-ordered payments (child support, alimony)
* Other voluntary or employer-required deductions (union dues, uniform costs)

How to calculate gross and take-home pay

Calculate gross pay:
* Salaried employees: annual salary ÷ number of pay periods (e.g., $50,000 ÷ 26 = $1,923.08 per biweekly paycheck)
* Hourly employees: hourly wage × hours worked in the pay period

Then subtract all deductions to find take-home pay.

Example:
* Gross: $15/hour × 80 hours = $1,200
* Take-home: $900 after deductions
* Effective take-home hourly rate: $900 ÷ 80 = $11.25/hour

Pay stubs and year-to-date information

Pay stubs typically show earnings and individual deductions for the current pay period and may include year-to-date (YTD) totals for wages and withholdings. Review your pay stub to verify gross pay, each deduction, and the net amount.

Why take-home pay matters

• Budgeting: Use take-home pay—not gross pay—when planning monthly expenses and savings.
• Lending and credit: Lenders often consider net income when assessing repayment ability for loans, mortgages, and large purchases.
• Compensation comparisons: Comparing job offers or hourly rates should account for differences in deductions and benefits that affect net pay.

Quick tips

• Review pay stubs regularly to confirm accuracy.
• To adjust how much is withheld from pay, update your W-4 or consult HR—changes can affect your tax refund or balance due.
• Consider how pre-tax contributions (retirement, HSA) reduce taxable income and affect take-home pay.
• When evaluating benefits, weigh take-home pay impacts against the value of employer-paid coverage.

Source: Internal Revenue Service — Tax Tutorial: Payroll Taxes and Federal Income Tax Withholding