What is 'Take-Home Pay'
Take-home pay is the money that an employee actually receives from working after employment taxes and the cost of benefits and retirement contributions are subtracted. Take-home pay is calculated by taking the monthly gross income and subtracting federal income tax, Social Security and Medicare contributions, any state or local income taxes, monthly health and dental insurance premiums, 401(k) contributions and contributions to flexible spending accounts. The money that remains is what an employee takes home and has available for expenses, such as paying a mortgage, buying groceries and making discretionary purchases.
BREAKING DOWN 'Take-Home Pay'Because of all these payroll deductions, your take-home pay or net pay often differs significantly from your gross pay. When considering a salary offer for a job, raise or promotion, consider your take-home pay as well as your gross pay.
Similarly, when an employer extends a job offer, raise or promotion, he must consider that his true cost of having the employee is not just the employee's nominal salary but also includes payroll taxes, contributions to the employee's health insurance premiums or retirement plans, pay for vacation, sick and personal days, and the employee's share of operating expenses such as office space, equipment, utilities and parking.
How to Calculate Take-Home Pay as a Percentage of Gross Pay
To calculate your take-home pay as a percentage of gross pay, figure out your gross pay. Use the gross pay noted on your paycheck, divide your annual salary by the number of pay periods in the year, or multiply your hourly rate by the number of hours worked in that pay period. Then, divide your take-home pay by your gross pay and multiply by 100.
To illustrate, if you earn $15 per hour and you work 80 hours in a pay period, your gross pay is $1,200. If your take-home pay is $900, your take-home pay is 75% of your gross pay. This percentage increases or decreases as you earn more money, pay more or less tax, or alter your contributions to your retirement account.
How to Calculate Your Hourly Take-Home Pay Rate
To calculate the amount of take-home pay you earn per hour, take your take-home pay and divide it by the number of hours you have worked. You can do this calculation for a year's worth of work or for a single pay period.
How to Find Take-Home Pay on Your Paycheck Stub
The amount on your paycheck is your take-home pay. Most paycheck stubs label this amount as net pay. Stubs note your gross earnings, a list of your taxes and deductions, and your net pay. Many paycheck stubs also have a year-to-date field that shows the total net or take-home pay you have earned since January 1 of the current year.