Take-Home Pay

AAA

DEFINITION of 'Take-Home Pay'

The money that an individual actually receives from working after employment taxes and the cost of benefits and retirement contributions are subtracted. Take-home pay is calculated by taking an individual's monthly gross income and subtracting federal income tax, Social Security and Medicare taxes, any state or local income taxes, monthly health and dental insurance premiums, 401(k) contribution and contributions to a flexible spending account. The money that remains is what an employee actually has available for expenses like paying the mortgage, buying groceries and paying for discretionary purchases.

INVESTOPEDIA EXPLAINS 'Take-Home Pay'

Because of all these payroll deductions, an individual's take home pay (or net pay) often differs significantly from their gross pay. When considering a salary offer for a job, raise or promotion, individuals should look at what their take home-pay, not their gross pay, will be. Similarly, when an employer extends a job offer, pay raise or promotion, he must consider that his true cost of having that employee is not just the employee's nominal salary, but also the matching portion of Social Security and Medicare taxes; contributions to the employee's health insurance premiums, retirement plan and any other benefits; pay for vacation days, sick days and personal days; and the employee's share of operating expenses (such as office space, equipment, utilities and parking).



RELATED TERMS
  1. Payroll

    The sum total of all compensation that a business must pay to ...
  2. Social Security Tax

    The tax levied on both employers and employees used to fund the ...
  3. Retirement Contribution

    A monetary contribution to a retirement plan. Retirement contributions ...
  4. Medicare

    A U.S. federal health program that subsidizes people who meet ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. Matching Contribution

    A type of contribution an employer chooses to make to his or ...
RELATED FAQS
  1. How can I lower my effective tax rate without lowering my income?

    There are lots of ways to lower your effective tax rate, although your individual circumstances determine whether you can ... Read Full Answer >>
  2. Do I need to file an income tax return every year?

    Contrary to popular belief, there are indeed situations where a person does not need to file a tax return every year. For ... Read Full Answer >>
  3. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  4. How can I find out which income tax bracket I am in?

    U.S. federal tax brackets are based on filing status (single, married filing jointly, married filing separately or head of ... Read Full Answer >>
  5. Can a Limited Liability Company (LLC) issue stock?

    A limited liability company, or LLC, cannot issue stock. Instead, an LLC is structured to have single or multiple owners ... Read Full Answer >>
  6. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
Related Articles
  1. Retirement

    How Much Social Security Will You Get?

    You've been paying in for years - now it's time to find out what the system owes you.
  2. Retirement

    Payroll Deductions Pay Off

    Find out how you can bypass or defer taxes on thousands of dollars each year.
  3. Taxes

    Small Business Tax Obligations: Payroll Taxes

    Don't leave it up to your accountant - owners are ultimately responsible for fulfilling tax obligations.
  4. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  5. Personal Finance

    Is University Prestige Really That Important?

    Getting into a top school doesn't hurt, but it's not the real driver of who goes on to do well in life, as some provocative research demonstrates.
  6. Economics

    What is a Business Model?

    Business model is the term for a company’s plan as to how it will earn revenue.
  7. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  8. Economics

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  9. Personal Finance

    The Most Competitive Industries For New Graduates

    Graduating from college is an exciting yet uncertain time for many students, as the overall job market is becoming more complex as time goes on.
  10. Professionals

    Understanding Operations Management

    Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize profits.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center