What is take home pay?

What is take‑home pay?

Take‑home pay, also referred to as net pay or net income, is the sum an employee receives after deductions are removed from their gross pay, for example taxes and other withholdings. It shows the portion of their salary they actually take home.

The amount of take‑home pay can differ substantially depending on where the employee lives and their level of earnings.

How to calculate take‑home pay

Usually, working out an employee’s take‑home pay is straightforward. It is the amount left after the following deductions have been applied:

Income taxes. The tax withheld varies with several factors, including the employee’s income level, applicable tax credits, and the tax type or jurisdiction (for example, federal, state, provincial, municipal, etc.).

Social security. Many countries deduct social security contributions, which may be calculated based on salary or established as a fixed rate.

Retirement/pension contributions. When an employee takes part in a retirement savings plan, contributions are often deducted from their gross pay.

Health insurance. Employers frequently provide health insurance and may withhold premiums from an employee’s salary. The premium amount depends on the coverage chosen and the cost‑sharing arrangement.

Other deductions. This category covers additional withholdings such as flexible spending accounts, union dues, or other voluntary deductions.

Be aware that employees earning the same gross salary can still have different take‑home pay. Various extra factors may cause these discrepancies, such as:

• Commissions and bonuses
• Number of dependents
• Preferred tax arrangements (for example, entries on the W‑4 form in the US)
• Court-ordered withholdings
• Income from other employment sources