How to Calculate Take-Home Pay (Gross vs Net Explained)

The Paycheck Shock

You signed an offer letter for $5,000 a month. You get your first check, and it is for $3,800. Panic sets in. Did they make a mistake?

Likely not. You just met Net Pay.

The Formula

Net Pay = Gross Pay - (PreTax Deductions + Taxes + PostTax Deductions)

Step 1: Gross Pay

This is the "sticker price" of your labor.

• Salary: Annual / Pay Periods.
• Hourly: Rate x Hours Worked.

Step 2: Pre-Tax Deductions (The Good Stuff)

These come out before taxes, lowering your tax bill.

• 401(k): Retirement savings.
• Health Insurance: Premiums (usually).
• HSA/FSA: Medical savings.

Step 3: Taxes (The Inevitable)

• Federal Income Tax: Based on your W-4 settings and tax bracket.
• State/Local Tax: Depends on where you live/work.
• FICA: A flat 7.65% for Social Security and Medicare.

Step 4: Post-Tax Deductions

Money taken out after taxes.

• Roth 401(k): Retirement savings taxed now for tax-free growth later.
• Garnishments: Child support, unpaid debts.
• Life Insurance: Supplemental plans.

Example: $60,000 Salary (Biweekly)

• Gross: $2,307
• 401k (5%): -$115 (Reduces taxable income)
• Health Ins: -$100
• Federal Tax: -$250 (Estimate)
• State Tax: -$100 (Estimate)
• FICA: -$176
• Net Pay: $1,566

Summary

Your "real" income is your Net Pay. Always build your household budget based on this number, not your Gross Pay.

Find your exact number with our Take-Home Pay Calculator.