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. Matching Contribution

    A type of contribution an employer chooses to make to his or ...
  6. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
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

    How To Deduct All Of Your Charitable Donations?

    Donations made to charitable organizations can reduce your taxable income, thus your overall tax bill. But not all donations qualify to be deductable.
  5. Fundamental Analysis

    How do you use Microsoft Excel to calculate liquidity ratios?

    Learn how to calculate the most common liquidity ratios in Microsoft Excel by inputting financial figures from a company's balance sheet.
  6. Taxes

    What is Value-Added Tax (VAT) and who pays it?

    Learn about the definition of value-added tax, the necessary circumstances that require a business to pay it and when a business is exempt.
  7. Taxes

    What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual tax returns each year.
  8. Taxes

    What are the differences among gross income, adjusted gross income and modified adjusted gross income?

    Discover how calculating total taxable income is easier when gross income, adjusted gross income and modified adjusted gross income are fully understood.
  9. Taxes

    What is the difference between gross income and taxable income?

    Understanding common tax terms including gross income and taxable income can help individuals navigate tax accounting in an efficient way.
  10. Professionals

    What's the average salary of an investment banker?

    Compare average annual salaries of investment bankers based on position. Different levels of the career result in different levels of base payment and bonuses.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center