What is take home pay?

What does take-home pay mean?

Take-home pay (also called net pay or net income) is the amount an employee receives after deductions have been taken from their gross salary, for example taxes and other withholdings. It is the portion of their salary they can actually take home.

Take-home pay can vary significantly depending on where an employee lives and how much they earn.

How to work out take-home pay

Generally, working out an employee’s take-home pay is straightforward: it is the remainder after the deductions listed below have been applied:

Income taxes. The tax withheld varies according to several factors, such as the employee’s earnings, any qualifying tax credits and the taxing jurisdiction (for example federal, state, provincial or municipal).

Social security. Many jurisdictions require social security contributions to be deducted, either as a percentage of salary or at a fixed rate.

Retirement/pension contributions. Where an employee participates in a retirement savings scheme, contributions may be deducted from their gross pay.

Health insurance. Employers often deduct health insurance premiums from an employee’s salary; the exact amount depends on the level of coverage and the employer–employee cost-sharing arrangement.

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

Be aware that employees with the same gross salary can still receive different take-home pay. Typical reasons include:

• Commission and bonus payments
• Number of dependants
• Chosen tax-withholding arrangements (for example, entries on the W‑4 form in the US)
• Court-ordered withholdings
• Additional income from other employment sources